Rutkey Collectibles is a small toy company that manufactures and
sells metal replicas of classic cars. Each car sells for $3.15 The
cost of each unit follows:
|Fixed overhead ($21,500 per month, 21,500 units per month)||1.00|
|Total costs per unit||$||2.90|
One of Rutkey's regular customers asked the company to fill a special order of 600 units at a selling price of $2.15 per unit. Rutkey's can fill the order using existing capacity without affecting total fixed costs for the month. However, Rutkey's manager was concerned about selling at a price below the $2.90 cost per unit and has asked for your advice.
a. Prepare a schedule to show the impact of providing the special order of 600 units on Rutkey's profits in addition to the regular production and sales of 21,500 units per month. (Select option "higher" or "lower", keeping Status Quo as the base. Select "None" if there is no effect.)
b. Based solely on the data given, what is the lowest price per unit at which the model cars could be sold for the special order without reducing Rutkey's profits? (Round your answer to 2 decimal places.)
c. If Rutkey Collectibles company was operating at capacity, what would happen to operating profit if the special order was accepted?
|Computation of profit on special order|
|Revenue from special order||$1,290.00|
|Impact on profit from special order||$150.00||Higher|
lowest price per unit at which the model cars could be sold for the special order without reducing Rutkey's profits = Variable cost per unit = $1 + $0.50 + $0.40 = $1.90 per unit
If Rutkey Collectibles company was operating at capacity, operating profit decreased if the special order was accepted.
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