Miko Company manufactures a personal computer designed for use in schools and ma
ID: 2453814 • Letter: M
Question
Miko Company manufactures a personal computer designed for use in schools and markets it under its own label. Miko has the capacity to produce 27,000 units a year but is currently producing and selling only 12,000 units a year. The computer’s normal selling price is $1,740 per unit with no volume discounts. The unit-level costs of the computer’s production are $530 for direct materials, $110 for direct labor, and $180 for indirect unit-level manufacturing costs. The total product and facility-level costs incurred by Miko during the year are expected to be $2,150,000 and $816,000, respectively. Assume that Miko receives a special order to produce and sell 3,110 computers at $1,270 each.
Miko Company manufactures a personal computer designed for use in schools and markets it under its own label. Miko has the capacity to produce 27,000 units a year but is currently producing and selling only 12,000 units a year. The computer’s normal selling price is $1,740 per unit with no volume discounts. The unit-level costs of the computer’s production are $530 for direct materials, $110 for direct labor, and $180 for indirect unit-level manufacturing costs. The total product and facility-level costs incurred by Miko during the year are expected to be $2,150,000 and $816,000, respectively. Assume that Miko receives a special order to produce and sell 3,110 computers at $1,270 each.
Explanation / Answer
CAPACITY=27,000 UNITS
CURRENT PRODUCTION AND SALES=12,000 UNITS
SELLING PRICE PER UNIT=$1,740
DIRECT MATERIAL PER UNIT=$530
DIRECT LABOUR PER UNIT=$110
INDIRECT MANUFACTURING COST PER UNIT=$180
PRODUCT COST=$21,50,000
FACILITY COST=$8,16,000
CALCULATION OF CONTRIBUTION TO PROFIT FROM THE SPECIAL ORDER:
SALES OF THE SPECIAL ORDER=3,110 UNITS*$1,270 =$39,49,700
LESS:DIRECT MATERIAL COST=3,110 UNITS*$530 =$16,48,300
LESS:DIRECT LABOUR COST=3,110 UNITS*$110 =$3,42,100
LESS:INDIRECT MANUFACTURING COST=3,110 UNITS*$180=$5,59,800
CONTRIBUTION TO PROFIT =$13,99,500
TOTAL PRODUCTION AND FACILITY COST OF $21,50,000 AND $8,16,000 ARE IRRELEVANT