Capitol, Incorporated has received a special order for 2,000 units of its product at a special price of $195. The product normally sells for $260 and has the following manufacturing costs:
Capitol, Incorporated has received a special order for 2,000 units of its product at a special price of $195. The product normally sells for $260 and has the following manufacturing costs:
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter17: Activity Resource Usage Model And Tactical Decision Making
Section: Chapter Questions
Problem 18E: A company is considering a special order for 1,000 units to be priced at 8.90 (the normal price...
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Question
Capitol, Incorporated has received a special order for 2,000 units of its product at a special price of $195. The product normally sells for $260 and has the following
Cost per Unit | |
---|---|
Direct materials | $ 78 |
Direct labor | 52 |
Variable manufacturing overhead | 39 |
Fixed manufacturing overhead | 65 |
Total unit cost | $ 234 |
Assume that Capitol has sufficient capacity to fill the order without harming normal production and sales.
Required:
- If Capitol accepts the order, what effect will the order have on the company’s short-term profit?
- What minimum unit price should Capitol charge to achieve a $65,000 incremental profit?
- Now, assume Capitol is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Capitol accepts the order, what effect will the order have on the company’s short-term profit?
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