Question

Gus Company has just obtained a request for a special order of 8,000 jigs to be shipped at the end of the month at a selling price of $9 each. The company has a production capacity of 90,000 jigs per month. At present, the company is producing and selling 85,000 jigs per month through regular channels at a selling price of $12 each. For these regular sales, the cost for one jig is: Variable production costs $4.60 Fixed production costs 1.70 Variable selling expenses 1.40 Variable production costs and variable selling costs will remain the same on the special order units. There will be no change to total fixed costs. What would the selling price of the special order need to be in order for Gus Company to be economically indifferent between accepting and rejecting the special order?

Answer 1

Value in $ Particulars 85000 unit 90000 unit Selling Price    1,020,000.00      1,080,000.00 Variable cost        510,000.00     540,000.00 Contribution        510,000.00          540,000.00 Contributio per unit                     6.00                       6.00 Fixed Cost        153,000.00 153,000.00 Profit        357,000.00          387,000.00

Particulars 82000 unit 8000 unit Selling Price        984,000.00            72,000.00 Variable cost        492,000.00       48,000.00 Contribution        492,000.00            24,000.00 Contributio per unit                     5.79                       0.27 Fixed Cost        153,000.00                  -   Profit        339,000.00            24,000.00 Total Profit 363,000.00

Profit is Increesing by 6000$ so order can be aceepted