Alton Inc. is working at full production capacity producing 32,000 units of a un

Question

Alton Inc. is working at full production capacity producing 32,000 units of a unique product. Manufacturing costs per unit for the product are Direct materials $ 9 Direct labor 8 Manufacturing overhead 10 Total manufacturing cost per unit $ 27 The unit manufacturing overhead cost is based on a $4 variable cost per unit and $192,000 fixed costs. The nonmanufacturing costs, all variable, are $8 per unit, and the sales price is $45 per unit. Sports Headquarters Company (SHC) has asked Alton to produce 6,400 units of a modification of the new product. This modification would require the same manufacturing processes. SHC has offered to share the nonmanufacturing costs equally with Alton. Alton would sell the modified product to SHC for $30 per unit.

Required 1-a. Calculate the contribution margin for 6,400 units for both the current and special order.

Should Alton produce the special order for SHC?

Suppose that Alton Inc. had been working at less than full capacity to produce 26,800 units of the product when SHC made the offer. What is the minimum price that Alton should accept for the modified product under these conditions?

Should Alton produce the special order for SHC?

Suppose that Alton Inc. had been working at less than full capacity to produce 26,800 units of the product when SHC made the offer. What is the minimum price that Alton should accept for the modified product under these conditions?

Explanation / Answer

Particulars Current Order Special Order Sales 288000 192000 Less;Variable Cost Direct materials 57600 57600 Direct labor 51200 51200 Manufacturing overhead 64000 64000 unit manufacturing overhead 25600 25600 nonmanufacturing costs 51200 25600 Contribution margin 38400 -32000 Alton should not produce the special order for SHC Particulars Current Order Sales 804000 Less;Variable Cost Direct materials 241200 Direct labor 214400 Manufacturing overhead 268000 unit manufacturing overhead 107200 nonmanufacturing costs 107200 Contribution margin -134000 Fixed Cost 192000 Sales Price Contribution+Fixed cost/units 2.164179104

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