Problem:
1. Although the Missouri Company has the capacity to produce 16,000 units per month, current plans call for monthly production and sales of only 10,000 units at $15 each. Costs per unit are as follows:
|
Direct materials
|
$5.00
|
|
Direct labor
|
3.00
|
|
Variable factory overhead
|
0.75
|
|
Fixed Factory overhead
|
1.50
|
|
Variable selling expense
|
0.25
|
|
Fixed administrative expenses
|
1.00
|
1. Should the company accept a special order for 4,000 units @ $10?
2. What is the maximum price the Missouri Company should be willing to pay an outside supplier who is interested in manufacturing this product?
3. What would be the effect on the monthly contribution margin if the sales price was reduced to $14, resulting in a 10 percent increase in sales volume?