PugetBrick produces an eight-sided garden path brick that normally sells for $12

Question

PugetBrick produces an eight-sided garden path brick that normally sells for $120. The company produces 8000 units annually but has the capacity to produce 11,000 units. An order from a customer (a large hotel) has been received for 200 such bricks at $85 each that would not disrupt current operations. Current costs for the bricks are as follows: Direct materials $23.00 Direct labor 45.00 Variable overhead 7.00 Fixed overhead 12.00 Total cost per brick $87.00 In addition, the customer would like to add a business logo to each brick which would require an additional $4 per brick in additional labor costs. PugetBrick would also have to purchase a piece of equipment to imprint the logo which would cost $800. This equipment would not have any other uses, so they want to recoup the cost on this order. Required (b): What is the incremental profit (or loss) if they need to buy two of the special machines to meet the customer's rush delivery schedule? How much extra should they charge for the rush delivery to make the same profit as the normal schedule above?

Explanation / Answer

Profit if they purchase one piece of equipment:

Loss if they purchase two pieces of equipment:

If they want to make profit of 400 as the normal schedule, amount to be charged:

a price of 89 should be charged to have same profit of 400

Order units 200 Price 85 Costs: Material 23 Labor 45 VOH 7 Logo 4 Total variable costs 79 Contribution per unit 6 Total contribution 1200 Equipment cost 800 Profit 400

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