A company has just received a special, one-time order for 1,500 units. Producing

Question

A company has just received a special, one-time order for 1,500 units. Producing the order will have no effect on the production and sales of other units. The buyer's name will be stamped on each unit, at a total cost of $2,500. Normal cost data, excluding stamping, follows:

Direct materials $ 12 per unit
Direct labor 18 per unit
Variable overhead 5 per unit
Allocated fixed overhead 13 per unit
Allocated fixed selling expense 9 per unit

What selling price per unit will this company require to earn $3,500 on the order?

Explanation / Answer

Sale price required is to be computed to earn profit of 3500

Total Cost computation (Includes cost of material, labor, variable overhead and other costs)

= 2500 + (12*1500) + (18*1500) + (5*1500) + (1500*13) + (1500*9) = 85500

Hence sale price shall be $ 88000

Note: question can also be solved without considering allocated fixed overheads for computing profitability in this case.

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