Differential Analysis Per Unit Total Differential revenue Differntial costs Dire

Question

Differential Analysis Per Unit Total Differential revenue Differntial costs Direct material 1200 units * price of $36 43200 Direct labor Variable manufacturing overhead Selling: Commission Shipping (F.O.B. factory terms) Total Variable cost Contribution margin from special order Fixed cost increment: Extra cost Profit on special order b. What is the lowest price Glendale could receive and still make a profit of $3,600 before income taxes on the special order? Round answer to two decimal places, if applicable. P8-2A. Special Order Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal normal capacity. $100,800 62,400 46,800 38,400 35,200 15,000 $298,600 Notes: Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units orfraction thereof until a maximum capacity of 10,000 units is reached. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales commission on sales totaling 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more. Glendale's sales manager has received a special order for 1,200 units from a large discount chain 1. 2. at a price of $36 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order 1. Changes in the product's design will reduce direct material costs $1.50 per unit. 2, Special processing will add 20% to the per-unit direct labor costs 3. Variable overhead will continue at the same proportion of direct labor costs 4. Other costs should not be affected

Explanation / Answer

Solution a:

Solution b:

Existing profit on special order = $3,096

Additional revenue required for profit of $3,600 = $3,600 - $3,096 = $504

Lowest price glendale could receiving to earn target profit = $36 + $504/1200 = $36.42 per unit

Glendale Manufacturing Company - Differential Analysis - Special Order Particulars Per Unit Total Differential Revenue $36.00 $43,200.00 Differential Cost: Direct Material ($100,800/8000 - $1.50) $11.10 Direct Labor ($62,400 / 8000*120%) $9.36 Variable Manufacturing Overhead ($46,800/62400 = 75% of Direct Labor) $7.02 Sales Commission (36*6%*2/3) $1.44 Shipping (FOB Factory Terms) $0.00 Total Variable Cost $28.92 $34,704.00 Contribution Margin from Special Order $8,496.00 Extra Fixed Cost ($1800*3) $5,400.00 Profit on Special Order $3,096.00

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