Question

Capitol has received a special order for 2,000 units of its product at a special price of $150. The product normally sells for $200 and has the following manufacturing costs:   

	Per unit
Direct materials		$	50
Direct labor			30
Variable manufacturing overhead			20
Fixed manufacturing overhead			40
Unit cost		$	140

Assume that Capitol has sufficient capacity to fill the order without harming normal production and sales and all fixed overhead is unavoidable.  

a. If Capitol accepts the order, what effect will the order have on the company’s short-term profit?

b. What minimum price should Capitol charge to achieve a $40,000 incremental profit? (Round your answer to 2 decimal places.)

c. Now assume Capitol is currently operating at full capacity and cannot fill the order without harming normal production and sales. If Capitol accepts the order, what effect will the order have on the company’s short-term profit?

Answer 1

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