Walton Company, which produces and sells a small digital clock, bases its pricin
ID: 2580996 • Letter: W
Question
Walton Company, which produces and sells a small digital clock, bases its pricing strategy on a 25 percent markup on total cost. Based on annual production costs for 15,000 units of product, computations for the sales price per clock follow Unit-level costs Fixed costs Total cost (a) Markup (a x 0.25) Total sales (b) Sales price per unit (b ÷ 15,000) $330,000 102,000 34 Required a. Walton has excess capacity and receives a special order for 4,000 clocks for $25 each. Calculate the contribution margin per unit. Based on this, should Walton accept the special order? b. Prepare a contribution margin income statement for the special order.Explanation / Answer
a Variable costs per unit = 330000/15000=22 Contribution margin per unit = 25-22 = $3 Yes, the special order should be accepted b Sales revenue 100000 Variable costs 88000 Contribution margin 12000