A Company Is Currently Operating at 60% Capacity Producing 10,000

question 79

Essay

A company is currently operating at 60% capacity producing 10,000 units.Cost information relating to this current production is shown in the following table:
$\begin{array}{|l|r|}\hline & \text { Per Unit } \\\hline \text { Sales price } & \$ 21 \\\hline \text { Direct material } & \$ 6 \\\hline \text { Direct labor } & \$ 4.12 \\\hline \begin{array}{l}\text { Variable } \\\text { overhead }\end{array} & \$ 2.23 \\\hline \text { Fixed overhead } & \$ 0.80\\\hline \end{array}$

The company has been approached by a customer with a request for a special order for 5,000 units.What is the minimum per unit sales price that management would accept for this order if the company wishes to increase current profits?

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Definitions:

Predetermined Overhead Rate

A rate calculated before the accounting period begins, used to allocate manufacturing overhead costs to individual units of product based on a certain activity, like labor hours.

Direct Labor-Hours

A measure of the time employees who work directly in the production of goods spend on a specific job or product, used to allocate labor costs in job costing.

Machine-Hours

A measure of the amount of time machines are used in the production process, often used to allocate manufacturing overhead costs.

Machining Department

A division within a manufacturing facility where machines are used to process materials into finished products.