Question

Vernon Concrete Company pours concrete slabs for single-family dwellings. Lancing Construction Company, which operates outside Vernon’s normal sales territory, asks Vernon to pour 45 slabs for Lancing’s new development of homes. Vernon has the capacity to build 470 slabs and is presently working on 210 of them. Lancing is willing to pay only $2,690 per slab. Vernon estimates the cost of a typical job to include unit-level materials, $950; unit-level labor, $520; and an allocated portion of facility-level overhead, $1,260.

 

Required
Calculate the contribution to profit from the special order. Should Vernon accept or reject the special order to pour 45 slabs for $2,690 each?

Answer 1

The computation of the contribution to profit from the special order is shown below:

= Sales revenue - Material cost - Labor cost

where,

 

Sales revenue = 45 slabs x 2,690= $121,050

Material cost = 45 slabs x 950= $42,750

Labor cost = 45 slabs x 520= $23,400

 

Now put these values to the above formula  

So, the value would equal to

= 121,050 - 42,750 - 23,400

= $54,900

The material and labor cost is a variable cost and the same is taken in the computation part

So, it should accept the special order

$54,900 It should accept the special order