simple question: ONLY and I mean ONLY answer if you know the answer... Do 1 and

ID: 2556557 • Letter: S

Question

simple question:

ONLY and I mean ONLY answer if you know the answer...

Do 1 and especially #3... SHOW YOUR WORK

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Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows Per Unit Sales price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 54.50 23.00 10.00 4.00 5.00 Total manufacturing cost Suppose that Ironwood has been approached about producing a special order for 3,100 units of custom CV sunglasses for a new semiprofessional volleyball league. All units in the special order would be produced in the league's signature colors with a specially designed logo emblem attached to the side of the glasses. The league has offered to pay $52.00 per unit in the special order. Additional costs for the special order total $5.00 per unit for mixing the special frame color and purchasing the emblem with the league's logo that will be attached to the glasses Required 1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin Ironwood would make by accepting the special order ona S 54,250 2-a. Calculate the current contribution margin per unit. (Round your answer to 2 decimal places.) Current CM per 17.50 2-b. Suppose Ironwood is currently operating its production facility at full capacity and accepting the special order would mean reducing production of its regular CV model. Should Ironwood accept the special order in this case? No 3. Calculate the special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order. (Round your answer to 2 decimal places.) der -?$ 10.90 G Unit pecia per

Explanation / Answer

Solution:

Part 1 –

Company has idle capacity to accommodate special order. It means without any additional fixed cost company can make the units of special order.

The question is related to relevant cost.

Relevant cost is the cost to be incurred in future and different in each alternative course of action.

For making special order units, company will incur all variable manufacturing cost to make product i.e. direct material, direct labor and variable manufacturing overhead.

Fixed Cost is treated as period cost and hence ignored in decision making. Fixed Cost will remain same whether to make special order or not. Hence fixed cost does not play any role in decision making.

Total Variable manufacturing Cost per unit = Total Manufacturing Cost – Fixed Manufacturing overhead

= $42 – 5 = $37 per unit

Additional CM from Special Order

Special Order Unit

3,100 Units

Selling Price for Special Order per unit

$52

Sales Revenue from Special Order (3100*52)

$161,200

Less: Variable Cost (3100*$37)

-$114,700

Less: Additional Cost for Mixing of Special Frame (3100*5)

-$15,500

Additional Contribution Margin

$31,000

Additional CM from Special Order = $31,000

Part 2 --- Already completed

Part 3 – Special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order

Indifferent Price means at which no profit and no loss.

So the Price at which no profit or no loss is the total variable cost for special order

Special Order Price per unit (Indifferent)

Total Manufacturing Variable Cost per unit

$37 per unit

Add: Per Unit Additional Cost for Mixing

$5 per unit

Special Order price per unit at indifferent level

$42 per unit

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