Munoz Company, which produces and sells a small digital clock, bases its pricing

Question

Munoz Company, which produces and sells a small digital clock, bases its pricing strategy on a 20 percent markup on total cost. Based on annual production costs for 20,000 units of product, computations for the sales price per clock follow:

Munoz has excess capacity and receives a special order for 7,000 clocks for $25 each. Calculate the contribution margin per unit. Based on this, should Munoz accept the special order?

Prepare a contribution margin income statement for the special order.

Unit-level costs $ 440,000 Fixed costs 60,000 Total cost (a) 500,000 Markup (a × 0.20) 100,000 Total sales (b) $ 600,000 Sales price per unit (b ÷ 20,000) $ 30

Munoz has excess capacity and receives a special order for 7,000 clocks for $25 each. Calculate the contribution margin per unit. Based on this, should Munoz accept the special order?

Contribution margin per unit Should Munoz accept the special order?

Explanation / Answer

Contribution margin per unit : 25-22 = 3

Variable cost per unit is 22

Based on this munoz can accept has the contribution will be profit but the margin will be less than 20%

Incremental revenue : 175000

Variable costs . : 154000

Contribution to profit : 21000

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