Glade Company produces a single product. The costs of producing and selling a si

Question

Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company’s current activity level of 8,200 units per month are:

The normal selling price is $14.95 per unit. The company’s capacity is 10,500 units per month. An order has been received from a potential customer overseas for 2,300 units at a price of $11.00 per unit. This order would not affect regular sales.

If the order is accepted, by how much will monthly profits increase or decrease? (The order would not change the company’s total fixed costs.) (Input the amount as a positive value.)

Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)

Glade Company produces a single product. The costs of producing and selling a single unit of this product at the company’s current activity level of 8,200 units per month are:

Explanation / Answer

Solution.

1. Calculation of increase/decrease in profits if order is accepted:

Contribution per unit on additional units sold = $11 - ($1.60+$3+$0.80+$1) = $4.60

Total Additional profit = $4.60*2300 units = $10580

2. Since the units are already produced, relevant cost would be additional selling cost incurred per unit.

That is $1.00 per unit.

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