Packer Concrete Company pours concrete slabs for single-family dwellings. Wolff

Question

Packer Concrete Company pours concrete slabs for single-family dwellings. Wolff Construction Company, which operates outside Packer’s normal sales territory, asks Packer to pour 50 slabs for Wolff’s new development of homes. Packer has the capacity to build 360 slabs and is presently working on 200 of them. Wolff is willing to pay only $2,610 per slab. Packer estimates the cost of a typical job to include unit-level materials, $910; unit-level labor, $540; and an allocated portion of facility-level overhead, $720.

Explanation / Answer

Solution :-

Contribution to profit from acceptance of Special order = Sales revenue - Material cost - Labor cost.

= (2610 * 50) - (910 * 50) - (540 * 50)

= 130500 - 45500 - 27000

= $ 58,000.

Conclusion :- Contribution to profit from the acceptance of Special order of 50 slabs = $ 58,000.

Note :- Allocated expense (allocated portion of facility level overhead) will not be considered while determining the contribution to profit from accepting the special order of 50 slabs.

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