Question

Special Order
Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Direct material				$101,600
Direct labor				63,200
Variable manufacturing overhead				47,600
Fixed manufacturing overhead (Note 1)				38,400
Selling expense (Note 2)				35,200
Administrative expense (fixed)				15,000
				$301,000

Notes:
1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is reached.
2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales commission on sales totaling 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more.

Glendale's sales manager has received a special order for 1,200 units from a large discount chain at a price of $36 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order:

1. Changes in the product's design will reduce direct material costs $1.50 per unit.
2. Special processing will add 20% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.

a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

Differential Analysis
	Per Unit	Total
Differential revenue		$Answer
Differential costs
Direct material	$Answer
Direct labor	Answer
Variable manufacturing overhead	Answer
Selling:
Commission	Answer
Shipping (F.O.B. factory terms)	Answer
Total variable cost	$Answer	Answer
Contribution margin from special order		Answer
Fixed cost increment:
Extra cost		Answer
Profit on special order		$Answer

b. What is the lowest price Glendale could receive and still make a profit of $3,600 before income taxes on the special order?

Round answer to two decimal places, if applicable.

$Answer

Answer 1

	Cost	Cost per unit	Increase/)decrease in cost)	Cost for special order
Direct material	$101,600	$12.7	-1.5	$11.2
Direct labor	63,200	$7.9	1.58(7.9*20%)	$9.48
Variable manufacturing overhead	47,600	$5.95	1.19(5.95*20%)	$7.14
Differential Analysis
	per unit	Total cost
Differential revenue (1200*36)		43200
Differential cost
Direct material	$11.2
Direct labor	$9.48
Variable manufacturing overhead	$7.14
Selling
Commission (36*6%*2/3)	1.44
Shipping expenses	0
Total variable cost	$29.26	$35112	(29.26*1200)
Contribution margin		$8088
LesS:fixed cost
Extra cost (1800*3)		5400
Profit on special order		$2688
ans 2
Sales=(Desired profit + Fixed expense) /CM ratio	48077
(3600+5400)/CM ratio
(3600+5400)/0.1872
CM ratio =8088/43200*100	18.72%
Sales price per unit 48077/1200	$40.06

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