nent 6 Exercise 6-7A Special order decision LO 6-2 Solomon Company manufactures

Question

nent 6 Exercise 6-7A Special order decision LO 6-2 Solomon Company manufactures a personal computer designed for use in schools and markets it under its own label. Solomon has the capacity to produce 44,000 units a year but is currently producing and selling only 13,000 units a year. The computer's normal selling price is $1,630 per unit with no volume discounts. The unit-level costs of the computer's production are $600 for direct materials, $190 for direct labor, and $190 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Solomon during the year are expected to be $2,220,000 and $812,000, respectively. Assume that Solomon receives a special order to produce and sell 3,130 computers at $1,210 each, Required Calculate the contribution to profit from the special order. Should Solomon accept or reject the special order? to profit Prev 6 of 10Nex>

Explanation / Answer

Ans)

Calculation of contribution to profit from the special order

Sales revenue = 3130 X $1210 = $3,787,300

Less:

Direct materials (3130 X 600) = (1878000)

Direct labour (3130 X 190) = (594700)

Indirect cost (3130 X 190) = (594700)

Contribution = 719900

Since the acceptance will produce a $719900 benefit over a decision to reject, the special order should be accepted

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