Star Manufacturing Company is asked by a customer to fulfil a one-time special o
ID: 2559304 • Letter: S
Question
Star Manufacturing Company is asked by a customer to fulfil a one-time special order for a product similar to one offered to other customers. Following is the per unit data for sales to their regular customers Direct materials Direct labor Variable manufacturing support Fixed manufacturing support s 600 200 300 Total manufacturing costs Markup (50%) Targeted selling price $1,600 809 2400 Star Manufacturing has excess capacity to complete this request without it impacting production for other customers Required: a. What is the full cost of the product per unit if the marketing costs is $4007 b. What is the contribution margin per unit? c. Which costs are relevant for making the decision regarding this one-time-only special order? Why? d. For Star Manufacturing Company, what is the minimum acceptable price of this one-time only special order? e. For this one-time-only special order, should Star Manufacturing Company consider a price of $1,500 per unit? Why or why not?Explanation / Answer
a)Full cost per unit =Total manufacturing cost+ marketing cost
= 1600+400
= $2000 per unit
b)Total variable cost = direct material + labor +variable overhead+marketing(assuming variable)
= 600+200+300+400
= 1500
contribution per unit =price -variable cost
= 2400-1500
= $900
c)Only variable cost is relevant for making decision about special offer as it varies with level of sales .
It includes :direct material ,direct labor ,variable overhead .
Assuming no marketing cost will be incurred on special offersince customer itself approach to seller
d)Minimum acceptable price should be equal to variable cost =600+200+300
= $ 1100 per unit
e)At $ 1500 selling price ,offer is acceptable as it will result in profit of 1500-1100 = $ 400 per unit
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