Capitol has received a special order for 2,010 units of its product at a special

Question

Capitol has received a special order for 2,010 units of its product at a special price of $151. The product normally sells for $201 and has the following manufacturing costs:   

Assume that Capitol has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable.  

a. If Capitol accepts the order, what effect will the order have on the company’s short-term profit?

b. What minimum price should Capitol charge to achieve a $41,000 incremental profit? (Round your answer to 2 decimal places.)

  Minimum Price:__________
c. Now assume Capitol is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Capitol accepts the order, what effect will the order have on the company’s short-term profit?

Per unit Direct materials $ 51 Direct labor 31 Variable manufacturing overhead 21 Fixed manufacturing overhead 41 Unit cost $ 144

Explanation / Answer

a) Unit selling price of special order = $151 Total manufacturing costs per unit = $144 Profit margin per unit of special order = $151-$144 = $7 Total increase in profits due to special order = $7*2010 = $14070 b) Required increamental profits = $41000 Total increase in profits when the selling price per unit is $151 = $14070 = $151 + 13.398 = $164.398 c) Current selling price per unit = $201 Selling price per unit of special order = $151 Decrease in profits per unit due to special order = $201-$151 = $50 Total decrease in profits due to special order = 2010*$50 = $100500

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