
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Transcribed Image Text:Alton Inc. is working at full production capacity producing 25,000 units of a unique
product. Manufacturing costs per unit for the product are as follows:
Direct materials
$ 6
Direct labor
5
Manufacturing overhead
7
Total manufacturing cost per unit
$18
The per-unit manufacturing overhead cost is based on a $4 variable cost per unit and
$75,000 fixed costs. The nonmanufacturing costs, all variable, are $6 per unit, and the
sales price is $31 per unit.
Sports Headquarters Company (SHC) has asked Alton to produce 6,000 units of a
modification of the new product. This modification would require the same
manufacturing processes. However, because of the nature of the proposed sale, the
estimated nonmanufacturing costs per unit are only $3 (not $6). Alton would sell the
modified product to SHC for $21 per unit.
Required
1-a. Calculate the contribution margin for 6,000 units for both the current and special
order.
1-b. Should Alton produce the special order for SHC?
2. Suppose that Alton Inc. had been working at less than full capacity to produce
20,500 units of the product when SHC made the offer. What is the minimum price per
unit that Alton should accept for the modified product under these conditions?
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