Landor Appliance Corporation makes and sells electric fans. Each fan regularly s

Question

Landor Appliance Corporation makes and sells electric fans. Each fan regularly sells for $32. The following cost data per fan is based on a full capacity of 135,000 fans produced each period.

A special order has been received by Landor for a sale of 20,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $3 per fan for shipping. Landor is now selling 120,000 fans through regular channels each period. Assume that direct labor is an avoidable cost in this decision. What should Landor use as a minimum selling price per fan in negotiating a price for this special order?

Direct materials $ 10 Direct labor $ 9 Manufacturing overhead (50% variable and 50% unavoidable fixed) $ 8

Explanation / Answer

Solution:

Direct materials.................................................

$ 10

Direct labor........................................................

9

Variable manufacturing overhead ($8 × 0.50)..

    4

Variable selling cost..........................................

    3

Minimum selling price.......................................

$26

Direct materials.................................................

$ 10

Direct labor........................................................

9

Variable manufacturing overhead ($8 × 0.50)..

    4

Variable selling cost..........................................

    3

Minimum selling price.......................................

$26

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