Mojito Manufacturing is approached by a European customer to fulfill a one-time

Question

Mojito Manufacturing is approached by a European customer to fulfill a one-time special order for a product similar to aone offered to domestic customers. The following per unit data apply for sales to regular customers:

Mojito Manufacturing has excess capacity.

Required

a. What is the full cost of the product per unit if the maketing costs is $3,000?

b. What is the contribution margin per unit?

c. Which costs are relevant for making the decision regarding this one-time-only special ordrer?Why?

d. For Mojito Manufacturing, what is the minimum acceptable price of this one-time-only special order?

e. For this one-time-only special order, should Mojito Manufacturing consider a price of $5,400 per unit? Why or Why not?

Direct Materials $1,782 Direct Labor 810 Variable manufacturing support 1,296 Fixed manufacturing support 2,808 Total manufacturing costs 6,696 Markup (50%) 3,348 Targeted selling price $10,044

Explanation / Answer

a. What is the full cost of the product per unit if the maketing costs is $3,000?

$6,696

b. What is the contribution margin per unit?

= $6156

(Selling price $10044 - $1782 – 810 - 1296).

c. Which costs are relevant for making the decision regarding this one-time-only special ordrer?Why?

Relevant costs for decision making are the incremental costs

Total Relevent costs = $3888 (Variable costs = $1782+810+1296)

.

d. For Mojito Manufacturing, what is the minimum acceptable price of this one-time-only special order?

The minimum acceptable price is $3888 = Variable costs ($1782+810+1296),

e. For this one-time-only special order, should Mojito Manufacturing consider a price of $5,400 per unit? Why or Why not?

Yes, because this price is greater than the minimum acceptable price

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