Mission Electronics manufactures and sells basic DVD players for sale under vari
ID: 2421995 • Letter: M
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 Cash & Carry, a chain of low-price electronic sales and rental outlets, has asked Mission to supply them with 32,000 players for a special promotion Pacific is planning. Pacific has offered to pay Mission a unit price of $51 per DVD player. The regular selling price is $73. The special order would require some modification to the basic model. These modifications would add $5.30 per unit in material cost, $2.80 per unit in labor cost, and $1.80 in variable overhead cost. Although Mission has the capacity to produce the 32,000 units without affecting its regular production of 463,000 units, a one-time rental of special testing equipment to meet Pacific’s requirements would be needed. The equipment rental would be $81,400 and would allow Mission to test up to 63,000 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.)
Mission Electronics manufactures and sells basic DVD players for sale under various generic store brand names. The cost of one of their models follows:
Explanation / Answer
Mission Electronics a Special Order Marginal Costing Details Unit Cost /Rev $ Unit selling price offered $ 51.00 Material cost $ 24.60 Direct Labor cost $ 16.10 Variable Overhead $ 8.10 Special testing tool cost $ 2.54 Total Variable cost per unit $ 51.34 Total revenue from 32000 units sales $ 1,632,000.00 Total variable cost for 32000 units $ 1,643,000.00 Net Operating loss from this order $ 11,000.00 Fixed costs not considered as the capacity is sufficient to produce the additional volume. b As the variable cost /unit is exceeding the sales price offered, the offer should be rejected . c Required target unit variable cost for profit making =51 Sprecial tool rental will reduce by 0.34 per set if 37000 units tested . So at 37000 units level unit variable cost will be $51. Min qty of special order would be 37001 to make it profitable.