In: Accounting
Ironwood Company manufactures a variety of sunglasses.
Production information for its most popular line, the Clear...
Ironwood Company manufactures a variety of sunglasses.
Production information for its most popular line, the Clear Vista
(CV), follows:
|
Per Unit |
Sales price |
$ |
52.50 |
Direct materials |
|
21.00 |
Direct labor |
|
10.00 |
Variable manufacturing overhead |
|
2.00 |
Fixed manufacturing overhead |
|
5.00 |
Total manufacturing cost |
$ |
38.00 |
|
Suppose that Ironwood has been approached about producing a special
order for 2,900 units of custom CV sunglasses for a new
semiprofessional volleyball league. All units in the special order
would be produced in the league’s signature colors with a specially
designed logo emblem attached to the side of the glasses. The
league has offered to pay $50.00 per unit in the special order.
Additional costs for the special order total $4.00 per unit for
mixing the special frame color and purchasing the emblem with the
league’s logo that will be attached to the glasses.
Required:
1. Assume Ironwood has the idle capacity necessary to
accommodate the special order. Calculate the additional
contribution margin Ironwood would make by accepting the special
order.
2-a. Calculate the current contribution margin
per unit.
2-b. Suppose Ironwood is currently operating
its production facility at full capacity and accepting the special
order would mean reducing production of its regular CV model.
Should Ironwood accept the special order in this case?
|
|
|
|
Should Ironwood accept the
special order in this case? |
|
|
3. Calculate the special order price per unit
at which Ironwood is indifferent between accepting or rejecting the
special order.
|
|
Special-Order Price |
|
per Unit |
|