Starlord company makes and sells a product that regularly sell for $39.85 each. The following information...

Starlord company makes and sells a product that regularly sell for $39.85 each.

The following information is available for the current year:

Annual maximum capacity in units	6,800
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 900 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 $6.5 to engrave the logo.

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

A.) $

Expert Solution

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Star lord Company

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

Sell price	39.85
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	24.87

Production capacity	6,800.00
Units sold to external customers	6,200.00
Balance	600.00
Demand to be fulfilled	900.00
Units lost of external customer	300.00
Contribution lost	7,461.00
Contribution lost per unit	8.29	This is $ 7,461/ 900 units.
Add: Variable costs per unit	14.98
Add: Cost of logo per unit	6.50
Relevant price per unit	29.77
Minimum total sales revenue	26,793.00
So Minimum total sales revenue should be $ 26,793.

ekkarill92 answered 2 years ago

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