Elsea Company, which produces and sells a small digital clock, bases its pricing

Question

Elsea Company, which produces and sells a small digital clock, bases its pricing strategy on a 20 percent markup on total cost. Based on annual production costs for 16,000 units of product, computations for the sales price per clock follow Unit-level costs Fixed costs $320,000 80,000 Total cost (a) 400,000 Markup (a x 0 20) 80,000 $480,000 Sales price per unit (b 16,000) 30 Total sales (b) Required a-1.Elsea has excess capacity and receives a special order for 5,000 clocks for $24 each. Calculate the contribution margin per unit from the special order er unit a-2. Should Elsea accept the special order? Yes O No b. Prepare a contribution margin income statement for the special order ELSEA CO Type here to search 4

Explanation / Answer

Answer to A-1

Answer to A-2

Yes order should be accepted as there is spare capacity and contribution of $4 per unit and fixed cost will not be incurred on special order.

Answer to B

Particulars Amt Sales Price 24 Less: Variable Cost (320000/16000) 20 Contribution Per Unit 4

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