Hi Mariam,
Minimum price should be able to cover the variable costs and the additional fixed cost arising from the acceptance of this special order.
1. Variable Cost per Unit
Direct Materials $125
Direct Labor 25
Var. Manufacturing Cost 50
Shipping & Handling Cost
5 Total Var. Cost per Unit $205
2. Additional Fixed Cost per Unit of Special Order
Add'l Fixed Cost = [($15+$10)x10,000] x 20%
= $250,000 x 20%
= $50,000
Add'l FC per Unit = $50,000 / 2,000 units
= $25
3. Minimum Selling Price
Unit Var. Cost $205
Unit Fixed Cost
25 Min. Selling Price $230
Kind regards,
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Kenneth
Accountant
Dubai
United Arab Emirates
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Original Message:
Sent: 05-20-2014 05:22 AM
From: Mariam Adnan
Subject: q 33 unit 9 p2
Need working of following
Panyer Co. is a producer of a tank component. This product, J-5, has the following selling price and costs per unit:Selling price$300Direct materials125Direct labor25Variable manufacturing overhead50Shipping and handling5Fixed manufacturing overhead15Fixed selling and administrative10Total costs$230Panyer has again received a special, one-time offer for 2,000 units of J-5. Panyer is now operating at full capacity, 10,000 units, at a total cost of $2,300,000. To produce this order would cause a 20% increase in fixed costs. What is the minimum price that is acceptable for this one-time, special order?
Correct ans 230
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Mariam Adnan
Accountant
Manama
Bahrain
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