Korte Company is currently producing 16,000 units per month, which is 80% of its
ID: 2355156 • Letter: K
Question
Korte Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable manufacturing costs are currently $8.00 per unit. Fixed manufacturing costs are $56,000 per month. Korte pays a 9% sales commission to its sales people, has $30,000 in fixed administrative expenses per month, and is averaging $320,000 in sales per month. A special order received from a foreign company would enable Korte Company to operate at 100% capacity. The foreign company offered to pay 75% of Korte's current selling price per unit. If the order is accepted, Korte will have to spend an extra $2.00 per unit to package the product for overseas shipping. Also, Korte Company would need to lease a new stamping machine to imprint the foreign company's logo on the product, at a monthly cost of $2,500. The special order would require a sales commission of $3,500. Instructions Compute the following: units for special order. (Round answer to 0 decimal places, e.g. 125.) Foreign company's offered price per unit $ (Round answer to 2 decimal places, e.g. 10.50.) What is the manufacturing cost of producing one unit of Korte's product for regular customers? $ (Round answer to 2 decimal places, e.g. 10.50.) Complete an incremental analysis of the special order. (If an amount should be blank, enter a zero. All boxes must be filled to be correct. If amount decreases net income, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Reject Order Accept Order Net Income Increase (Decrease) Revenues $ $ $ Costs Variable Manufacturing Sales commission Shipping Stamping machine Total costs Net income $ $ $ Should management accept the order? What is the lowest price that Korte could accept for the special order to earn net income of $1.20 per unit? $(Round answer to 2 decimal places, e.g. 10.50.)Explanation / Answer
Full production capacity = 16000 / 0.80 = 20000 units per month Units available for special order = 20000 - 16000 = 4000 units
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