Ironwood Company manufactures a variety of sunglasses. Production information fo

Question

Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows: Per Unit Sales price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 52.50 21.00 10.00 2.00 Total manufacturing cost 38.00 Suppose that Ironwood has been approached about producing a special order for 2,900 units of custom CV sunglasses for a new semiprofessional volleyball league. All units in the special order would be produced in the league's signature colors with a specially designed logo emblem attached to the side of the glasses. The league has offered to pay $50.00 per unit in the special order. Additional costs for the special order total $4.00 per unit for mixing the special frame color and purchasing the emblem with the league's logo that will be attached to the glasses. Required 1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin Ironwood would make by accepting the special order. l CM 2-a. Calculate the current contribution margin per unit (Round your answer to 2 decimal places.) t CM per 2-b. Suppose Ironwood is currently operating its production facility at full capacity and accepting the special order would mean reducing production of its regular CV model. Should Ironwood accept the special order in this case? O Yes O No 3. Calculate the special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order. (Round your answer to 2 decimal places.) r Price per Unit

Explanation / Answer

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Sales price 50 Less: Incremental costs Direct materials 21 Direct labor 10 Variable manufacturing overhead 2 Additional costs 4 Total Incremental costs 37 Unit Contribution margin 13 Additonal contribution Margin (2900*13) 37700 2a Sales price 52.5 Less: Variable costs Direct materials 21 Direct labor 10 Variable manufacturing overhead 2 Total variable costs 33 Unit Contribution margin 19.5 Current CM per unit = 19.5 2b NO,ironwood should not accept the special order , since there is decrease in profit 3) Special-order price =50+(19.5-13) 56.5 per unit

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