Korte Company is currently producing 16,000 units per month, which is 80% of its
ID: 2344394 • Letter: K
Question
Korte Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable manufacturing costs are currently $8.00 per unit. Fixed manufacturing costs are $56,000 per month. Korte pays a 9% sales commission to its sales people, has $30,000 in fixed administrative expenses per month, and is averaging $320,000 in sales per month.A special order received from a foreign company would enable Korte Company to operate at 100% capacity. The foreign company offered to pay 75% of Korte's current selling price per unit. If the order is accepted, Korte will have to spend an extra $2.00 per unit to package the product for overseas shipping. Also, Korte Company would need to lease a new stamping machine to imprint the foreign company's logo on the product, at a monthly cost of $2,500. The special order would require a sales commission of $3,500.
Compute the following:
4000 units for special order.
Foreign company's offered price per unit. (Round your answer to 2 decimal places, e.g. 5.25.)
$
What is the manufacturing cost of producing one unit of Korte's product for regular customers? (Round your answer to 2 decimal places, e.g. 2.25.)
$
Complete an incremental analysis of the special order. (If an amount is blank enter 0, all boxes must be filled to be correct. If the impact on net income is a decrease use either a negative sign preceding the amount, e.g. -45 or parenthesis, e.g. (45). Enter all other amounts as positive and subtract where necessary.)
Reject Order Accept Order Net Income
Increase
(Decrease)
Revenues $ 0
$
$
Costs
Variable Manufacturing 0
Sales commission 0 3500
Shipping 0
Stamping machine 0
2500
Total costs 0
Net income $ 0
$
$
Should management accept the order? yes
What is the lowest price that Korte could accept for the special order to earn net income of $1.20 per unit? (Round your answer to 2 decimal places, e.g. 5.25.)
$
Explanation / Answer
Full production capacity =16000 / 0.80 = 20000 units per month Units available for special order = 20000 - 16000 = 4000 units
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