Marjess Corp. manufactures shirts. and it is considering whether or not it shoul

Question

Marjess Corp. manufactures shirts. and it is considering whether or not it should accept a special order for 5.000 shirts. The normal selling price of a shirt is $45 and its unit product cost is $36 as shown below: Most of the manufacturing overhead is fixed: however. 30% of it is variable with respect to the number of shirts produced. The special order will require customizing the shirts for the customer with an additional direct materials cost of $5 per shirt and an additional direct labor cost of $4 per shirt. If it accepts this order. Marjess will have to rent special equipment to handle the shirt customization at a cost of $22,000. The order would have no effect on Marjess Corporation's regular sales and it could be fulfilled using the company's existing capacity without affecting any other order. What is the minimum (i.e., the break-even) sales price per unit that Marjess should charge for this special order? a. $17.00 b. $49.40 c. $32.00 d. $41.00

Explanation / Answer

Special order

Direct material cost = $8 + $5 = $13

Direct Labor = $16 + $4 = $ 20

Manufacturing overhead

Variable = $12 * 30% = $3.6

Additional cost = $22,000 for 5,000 units so manufacturing cost per unit = 22,000/5,000 = $4.4

Total manufacturing cost = $3.6 + $4.4 = $8

Total product cost = Material + labor + manufacturing cost = $13 + $20 + $8 = $41

So the minimum sale price or the break even sales price will be the product cost per unit for the special order

So the correct answer is d .$41

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