Thornton Company manufactures a personal computer designed for use in schools an

Question

Thornton Company manufactures a personal computer designed for use in schools and markets it under its own label. Thornton has the capacity to produce 37,000 units a year but is currently producing and selling only 12,000 units a year. The computer's normal sellng price is $1,780 per unit with no volume discounts. The unit-level costs of the computers production are $480 for direct materials, $130 for direct labor, and $140 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Thornton during the year are expected to be $2,210,000 and $804,000, respectively. Assume that Thornton receives a special order to produce and sell 3,120 computers at $1,230 each. Required Calculate the contribution to profit from the special order. Should Thornton accept or reject the special order? Contribution to profit Should Thomton accept or reject the special order?

Explanation / Answer

Contribution to Profit from Special Order: Revenue (3120 units @ 1230) 3837600 Less: Material (3120 units @ 480) 1497600 Labour (3120 units @130) 405600 Unit-level cost (3120 units @ 140) 436800 Incremental contribution 1497600 Contribution to profit 1497600 Should accept the order YES

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