Time Unlimited makes grandfather clock kits that it sells to hobbyists who then

Question

Time Unlimited makes grandfather clock kits that it sells to hobbyists who then assemble and finish the clocks. The company has the capacity to make 5,000 of the kits, and its current volume is 3,000 kits. The costs of a clock kit are: $300 for unit-level materials, $200 for unit-level labor, and $150 for an allocation of facility-level overhead. The normal selling price is $950. The Clock Builder has received a special order for 600 clock kits at a price of $600 each.

Required:
Should The Clock Builder accept the special order? Support your answer with appropriate computations.

Explanation / Answer

Yes, the clock builder must accept the offer, as it gives the additional contribution of $ 100 per clock kits. The explanation is as follows:

Selling price per kit as per special order:     $ 600 per kit'

Less: variable cost pe rkit

Material                                                    $300 per kit

Labour                                                      $ 200 per kit

Contribution earned per kit                          $ 100 per kit

Note: Allocated overhead is irrelevant cost as it has already been divided among normal sales units.

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