Swan Manufacturing is approached by a customer to fulfill a one-time-only specia
ID: 2589761 • Letter: S
Question
Swan Manufacturing is approached by a customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers: Direct materials Direct labor $1,825 900 Variable manufacturing support 1,300 Fixed manufacturing support 3000 Total manufacturing costs Markup (50%) Targeted selling price $7,025.00 3,512.50 Swan Manufacturing has excess capacity. Required: a. What is the full cost of the product per unit if the marketing costs is S3,000? b. What is the contribution margin per unit? c. Which costs are relevant for making the decision regarding this one-time-only special order? Why? d. For Swan Manufacturing, what is the minimum acceptable price of this one-time-only special order? e. For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of $5,400 per unit? Why or why not?Explanation / Answer
a. Given Total manufacturing costs = $7025
Total cost of sales = $7025 + $3000 = $10025
Therefore, Full Cost = $10025 + $5012.5 = $15037.5
b. Contribution Margin per unit = Sale Price - Variable costs = $10537.5 - ($1825+$900+$1300) = $6512.5
c. Only Variable costs are relevant for making the decision regarding this one-time-only special order because fixed costs are to be incurred whether or not the special order is accepted and Swan Manufacturing also has excess capacity so that no additional fixed costs would be incurred.
d. Minimum acceptable price = Total variable costs incurred to be recovered = $1825 + $900 + $1300 = $4025
e. The price of $5400 can be considered as it derives a profit of $1375 ($5400 - $4025) per unit
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