Mission Electronics manufactures and sells basic DVD players for sale under vari

Question

Mission Electronics manufactures and sells basic DVD players for sale under various generic store brand names. The cost of one of their models follows: Pacific is planning, Pacific has offered to pay Mission a unit price of $43 per DVD player. The regular selling price is $61. The special order would require some modification to the basic model. These modifications would add $4.10 per unit in material cost, $1.60 per unit in labor cost, and $.60 in variable overhead cost. Although Mission has the capacity to produce the 20,000 units without affecting its regular production of 451,000 units, a one-time rental of special testing equipment to meet Pacific's requirements would be needed. The equipment rental would be $49,000 and would allow Mission to test up to 51,000 units. Prepare a schedule to show the impact of filling the Pacific order on Mission's profits for the year. (Enter your answers in thousands of dollars. Round your answers to 1 decimal place.) From an operating profit perspective for the current year, should Mission accept the order? No yes What is the minimum quantity of DVD players in the special order that would make it profitable? The minimum quantity of DVD players

Explanation / Answer

1.

Incremental profit = - 21000

b. Its not feasible to accept the special order

c. Contribution per unit of special order = 1.4

BEP = 49000/1.4

= 35000

Minimum qty of DVD players = 35000

451000 units 471000 units Difference Sales 27511000 28371000 Less: Variable costs Material 8163100 8607100 Labour 5457100 5731100 Variable overhead 2300100 2414100 Contribution margin 11590700 11618700 Less: Fixed cost 2751100 2800100 Operating profit 8839600 8818600

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