Bert Asiago, as salesperson at Convertco, received an order from a potential new customer for 50,000...

Bert Asiago, as salesperson at Convertco, received an order from a potential new customer for 50,000 units of the company's single product. The price came in at $25 below the regular selling price of $65. Asiago knows that Convertco has the capacity to produce the product without affecting regular sales. He spoke to Bia Morgan, the controller, who informed him that at the $40 selling price, it's $42 of variable costs won't be covered. She recommends rejecting the order.

Bert knows that $4 of the $42 per unit in variable cost is due to sales commission. If he accepts a commission of $2 per unit, that will make contribution margin per unit zero. He wants to try this in hopes that a new, regular customer might be obtained.

1. Determine CM/unit per the controller

2. Determine CM/unit under Bert's plan

3. Do you recommend this special order? Why or why not?

4. What other factors should management consider?

Expert Solution

ekkarill92 answered 2 years ago

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