Franklin Company, which produces and sells a small digital clock, bases its pricing strategy on a 35 percent markup on total cost. Based on annual production costs for 12,000 units of product, computations for the sales price per clock follow. Unit-level costs $240,000 Fixed costs Total cost (a) 80,000 Markup (a x 0.35) Total sales (b) 320,000 112,000 $432,000 Sales price per unit (b + 12,000) 36 Required a. Franklin has excess capacity and receives a special order for 5,000 clocks for $24 each. Calculate the contribution margin per unit. Based on this, should Franklin accept the special order? b. Prepare a contribution margin income statement for the special order.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Franklin Company, which produces and sells a small digital clock, bases its pricing strategy on a 35 percent markup on total cost.
Based on annual production costs for 12,000 units of product, computations for the sales price per clock follow.
Unit-level costs
$240,000
80,000
320,000
112,000
$432,000
Fixed costs
Total cost (a)
Markup (a x 0.35)
Total sales (b)
Sales price per unit (b + 12,000)
Required
a. Franklin has excess capacity and receives a special order for 5,000 clocks for $24 each. Calculate the contribution margin per unit.
Based on this, should Franklin accept the special order?
b. Prepare a contribution margin income statement for the special order.
Transcribed Image Text:Franklin Company, which produces and sells a small digital clock, bases its pricing strategy on a 35 percent markup on total cost. Based on annual production costs for 12,000 units of product, computations for the sales price per clock follow. Unit-level costs $240,000 80,000 320,000 112,000 $432,000 Fixed costs Total cost (a) Markup (a x 0.35) Total sales (b) Sales price per unit (b + 12,000) Required a. Franklin has excess capacity and receives a special order for 5,000 clocks for $24 each. Calculate the contribution margin per unit. Based on this, should Franklin accept the special order? b. Prepare a contribution margin income statement for the special order.
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