Please answer entirely. Ironwood Company manufactures a variety of sunglasses. P
ID: 2558881 • Letter: P
Question
Please answer entirely.
Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows: Per Unit Sales price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $ 42.50 11.00 8.00 2.00 5.00 26.00 Total manufacturing cost Suppose that Ironwood has been approached about producing a special order for 1,900 units of custom cV sunglasses for a new semiprofessional volleyball league. All units in the special order would be produced in the league's signature colors with a specially designed logo emblem attached to the side of the glasses. The league has offered to pay $38.00 per unit in the special order. Additional costs for the special order total $4.00 per unit for mxing the special frame color and purchasing the emblem with the league's logo that will be attached to the glasses. Required 1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin Ironwood would make by accepting the special order. I CM 2-a. Calculate the current contribution margin per unit. (Round your answer to 2 decimal places.) Current CM per UnitExplanation / Answer
Variable cost per unit = Direct materials per unit + Direct labour per unit + Variable manufacturing overhead per unit
Additional costs associated with the special order = 4 per unit
1.
Variable cost per unit for the special order = 11 + 8 + 2 + 4 = 25
Contribution margin per unit = Selling price per unit - Variable costs per unit
= 38 - 25
= 13
Additional Contribution margin = Contribution margin per unit * number of units
= 13 * 1,900
= 24,700
2-a.
Variable costs = 11 + 8 + 2 = 21
Current Contribution margin per unit = Selling price - Variable costs
= 42.5 - 21
= 21.5
2-b.
No (as the current contribution margin is higher)
3.
Special order price = Difference in contribution margin + special order price
= (21.5 - 13) + 38
= 46.5