Question

Alton Inc. is working at full production capacity producing 34,000 units of a unique product. Manufacturing costs per unit for the product are as follows:

Direct materials	$	10
Direct labor		9
Manufacturing overhead		11
Total manufacturing cost per unit	$	30

The per-unit manufacturing overhead cost is based on a $6 variable cost per unit and $170,000 fixed costs. The nonmanufacturing costs, all variable, are $8 per unit, and the sales price is $55 per unit.

Sports Headquarters Company (SHC) has asked Alton to produce 6,000 units of a modification of the new product. This modification would require the same manufacturing processes. However, because of the nature of the proposed sale, the estimated nonmanufacturing costs per unit are only $4 (not $8). Alton would sell the modified product to SHC for $40 per unit.

Required

1-a. Calculate the contribution margin for 6,000 units for both the current and special order.

1-b. Should Alton produce the special order for SHC?

2. Suppose that Alton Inc. had been working at less than full capacity to produce 28,600 units of the product when SHC made the offer. What is the minimum price per unit that Alton should accept for the modified product under these conditions?

Required 1a

	Contribution Margin
Current
Special order

Required 1b

Should Alton produce the special order for SHC?

Required 2

Minimum price $

Answer 1