Visburg Concrete Company pours concrete slabs for single-family dwellings. Lanci

Question

Visburg Concrete Company pours concrete slabs for single-family dwellings. Lancing Construction Company, which operates outside Visburg's normal sales territory, asks Visburg to pour 40 slabs for Lancing's new development of homes. Visburg has the capacity to build 300 slabs and is presently working on 250 of them. Lancing is willing to pay only $3,300 per slab. Visburg estimates the cost of a typical job to include unit-level materials, $1,440; unit-level labor, $720; and an allocated portion of facility-level overhead, $1,200. Required Calculate the contribution to profit from the special order. Should Visburg accept or reject the special order to pour 40 slabs for $3,300 each? Contribution to profit Should Visburg accept or reject the special order? Accept

Explanation / Answer

Contribution from special order = (Per slab revenue - Unit material price - Unit labor cost) * Number of slabs - Fixed cost

=(3300 - 1440 - 720) * 40 - 1200

= 44400

Visburg should accept the special order as it has spare capacity to take the job and the job yields him a profit

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