Question

Stuart Company, which produces and sells a small digital clock, bases its pricing strategy on a...

Stuart Company, which produces and sells a small digital clock, bases its pricing strategy on a 25 percent markup on total cost. Based on annual production costs for 20,000 units of product, computations for the sales price per clock follow: Unit-level costs $ 420,000 Fixed costs 60,000 Total cost (a) 480,000 Markup (a × 0.25) 120,000 Total sales (b) $ 600,000 Sales price per unit (b ÷ 20,000) $ 30

Required Stuart has excess capacity and receives a special order for 7,000 clocks for $24 each.

Calculate the contribution margin per unit. Based on this, should Stuart accept the special order?

Prepare a contribution margin income statement for the special order.

  • Required A
  • Required B

Stuart has excess capacity and receives a special order for 7,000 clocks for $24 each. Calculate the contribution margin per unit. Based on this, should Stuart accept the special order?
Contribution margin per unit
Should Stuart accept the special order?

Prepare a contribution margin income statement for the special order.
STUART COMPANY
Contribution Margin Income Statement
Business   Accounting   
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Homework Answers

Answer #1

ANSWER

Variable expense per unit = 420,000 /20,000 = $21
Contribution margin per unit = 24 -21= $3
Yes the special order should be accepted
Income Statement
Incremental revenue 168,000 =7,000 *24
Variable costs 147,000 =7,000 *21
Contribution profit 21,000

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