Axle and Wheel Manufacturing Is Approached by a European Customer

question 183

Essay

Axle and Wheel Manufacturing is approached by a European customer to fulfil 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:
$$\begin{array} { l r } \text { Direct materials } & \$ 33 \\\text { Direct labour } & 15 \\\text { Variable manufacturing support } & 24 \\\text { Fixed manufacturing support } & \underline{ 52} \\\quad \text { Total manufacturing costs } & 124 \\\text { Mark-up (50\%) } & 62 \\\text { Targeted selling price } & \underline{\$ 186}\end{array}$$
Axle and Wheel Manufacturing has excess capacity.
Required:
a.What is the full cost of the product per unit?
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 Axle and Wheel Manufacturing,what is the minimum acceptable price of this one-time-only special order?
e.For this one-time-only special order,should Axle and Wheel Manufacturing consider a price of $100 per unit? Why or why not?
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Definitions:

Interest Capitalization

The addition of accrued interest to the principal balance of a loan, increasing the total amount owed.

Interest Capitalization

The process of adding accrued interest to the principal balance of a loan, thereby increasing the total amount of interest to be paid over the life of the loan.

Construction Loan

A short-term loan used to finance the building of a property or real estate project, usually converting to a long-term loan after completion.

Notes Payable

Financial obligations or loans represented by a promissory note that a company needs to pay back.