Spider Company makes and sells a product that regularly sell for $38.95 each. The following information...

Spider Company makes and sells a product that regularly sell for $38.95 each.

The following information is available for the current year:

Annual maximum capacity in units	6,500
Current annual production in units	6,200
Budgeted absorption cost per unit:
Direct materials	$9.95
Direct labor	$2.65
Manufacturing overhead (70% variable)	$3.40

A new customer approached the company with a one-time all-or-nothing order for 700 units. The special-order units are identical to the regular ones, with one exception: the customer would like their business logo engraved on each unit. It will cost $4 to engrave the logo.

(Q): The minimum total sales revenue from the special order that would be acceptable to the company is:

Expert Solution

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Spider Company

Minimum total sales revenue should be contribution lost from loss of sale to regular customers plus relevant costs.

Sell price	38.95
Less:
Direct materials	9.95
Direct labor	2.65
Variable Manufacturing overhead	2.38	This is $ 3.4*70%
Total variable costs	14.98
Contribution per unit	23.97

Production capacity	6,500.00
Units sold to external customers	6,200.00
Balance	300.00
Demand to be fulfilled	700.00
Units lost of external customer	400.00
Contribution lost	9,588.00
Contribution lost per unit	13.70
Add: Variable costs per unit	14.98
Add: Cost of logo per unit	4.00
Relevant price per unit	32.68
Minimum total sales revenue	22,874.00
So Minimum total sales revenue should be $ 22,874.

ekkarill92 answered 1 year ago

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