Question

Bassett Inc. manufactures leather sofas that it normally sells for $4,500 per sofa. A large retailer has offered to buy 200 sofas at a reduced price. The normal per-unit manufacturing costs are as follows:

Direct material $1,425

Direct labor $300

Variable manufacturing overhead $495

Fixed manufacturing overhead $1,075

Bassett has the capacity to fill the special order, but its employees will have to work overtime, which will increase the per-unit direct labor costs by 50%. In addition, Bassett will incur $18,000 of additional, one-time costs in connection with the order. What is the break-even selling price for the special order? _____________

Answer 1

Break-even selling price for the special order = $ 2,460 per unit

Working

Calculation of Additional Cost of Order
	Per Unit	Total
Direct material	$              1,425.00	$ 285,000
Direct labor	$                  450.00	$ 90,000
Variable manufacturing overheads	$                  495.00	$ 99,000
Additional fixed cost		$ 18,000
Total Additional cost due to acceptance of order	$              2,370.00	$ 492,000

.

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (200 x $2460)	$ 492,000
Less: Total Additional cost due to acceptance of offer	$ 492,000
Financial Advantage	$ 0

.

Total cost of produccing 200 units	$ 492,000.00
Price to breakeven (492000/200)	$      2,460.00