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 25 percent markup on total cost. Based on annual production costs for 25,000 units of product, computations for the sales price per clock follow $190,000 50,000 Unit-level costs Fixed costs 240,000 60,000 Total cost (a) Markup (a × 0.25) Total sales (b) Sales price per unit (b 25,000) S12 $300,000 Required a-1. Elsea has excess capacity and receives a special order for 8,000 clocks for $10 each. Calculate the contribution margin per unit. (Round your answer to 2 decimal places.) Contribution mar gin per unit a-2. Should Elsea accept the special order? Yes O No b. Prepare a contribution margin income statement for the special order, ELSEA COMPANY Income Statement

Explanation / Answer

1 cost per unit = 190000/25000                             = 7.6 Sales price per unit for special order = 10 contribution per unit for special order = 10 -7.6                                                                                   = 2.4 2 Elsea should accept the special order. 3 ELSEA COMPANY Income Statement sales (10 * 8000) 80000 Less Cost (7.6 * 8000) 60800 Contribution margin 19200

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