Question

The budget for the Manchester University Printing Company for 20X1 ​follows:

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​(Click the icon to view the budget​ data.)

Edith Gable​, the sales​ manager, has placed a £24,000 bid on a particularly large order with a cost of £5,800 direct material and £6,200 direct labor. The customer informs her that she can have the business for £19,500​, take it or leave it. If GableGable accepts the​ order, total sales for 20X1 will be £1,110,450. Gable refuses the​ order, saying,​ "I sell on a​ cost-plus basis. It is bad policy to accept orders at below cost. I would lose £560 on the​ job."

Requirements

1.	What would operating income have been with the​ order? Without the​ order? Show your computations.
2.	Give a short description of a​ contribution-margin technique to pricing that GableGable might follow to achieve a price of £24,000 on the order.

Requirement 1. Begin by computing the operating income without the​ order, then just the​ order, and finally with the order. ​(For amounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.)

	Without
	the Order
Sales	£
Direct material	£
Direct labor
Variable overhead
Fixed overhead
Total costs	£
Operating income	£

Effect of
the Order
£
£
£
£

With
the Order
£
£
£
£

Requirement 2. Give a short description of a​ contribution-margin technique to pricing that Gable might follow to achieve a price of £24,000 on the order. The contribution approach essentially provides a measure of the decrease in immediate ______ that would result from rejecting an order. This is the ________  by rejecting the order. Traditional approaches to pricing__________

The pricing formula that Gable should routinely use if she hopes to achieve a price of £24,000 on the​ order:

+ (

x

) =

Price

Answer 1

Contribution margin can be stated on a gross or per-unit basis. It represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm's costs.

The contribution margin is computed as the selling price per unit, minus the variable cost per unit. Also known as dollar contribution per unit, the measure indicates how a particular product contributes to the overall profit of the company. It provides one way to show the profit potential of a particular product offered by a company and shows the portion of sales that helps to cover the company's fixed costs. Any remaining revenue left after covering fixed costs is the profit generated.

The formula for contribution margin is as under

The contribution margin is computed as the difference between the sale price of a product and the variable costs associated with its production and sales process.

So that the formula for calculating price or sales price is we have to go to reverse calculation i:e

Profit/margin+ fixed cost+ all variable cost** = Revenue/ sales price

** it includes direct material, labour, overhead, etc.   

so this is the way to solve the problem,

I hope you understand it well and use calculator for accurate value, i used here approximate value.

so Guys problem is solved!!

Thanks

yours sincerely

CA Naveen Aggarwal