Question

Special Order
Total cost data follow for Greenfield Manufacturing Company, which has a normal capacity per period of 20,000 units of product that sell for $54 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Direct material				$268,800
Direct labor				202,000
Variable manufacturing overhead				154,000
Fixed manufacturing overhead (Note 1)				118,800
Selling expense (Note 2)				129,600
Administrative expense (fixed)				50,000
				$923,200

Notes:
1. Beyond normal capacity, fixed overhead costs increase $4,500 for each 1,000 units or fraction thereof until a maximum capacity of 24,000 units is reached.
2. Selling expenses consist of a 10% sales commission and shipping costs of $1 per unit. Greenfield pays only one-half of the regular sales commission rates on sales amounting to $3,000 or more.

Greenfield's sales manager has received a special order for 2,500 units from a large discount chain at a price of $44 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order:

1. Changes in the product's design will reduce direct material costs by $4 per unit.
2. Special processing will add 10% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.

a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

Differential Analysis
	Per Unit	Total
Differential revenue		$Answer
Differential costs
Direct material	$Answer
Direct labor	Answer
Variable manufacturing overhead	Answer
Selling:
Commission	Answer
Shipping (F.O.B. factory terms)	Answer
Total variable cost	$Answer	Answer
Contribution margin from special order		Answer
Fixed cost increment:
Extra cost		Answer
Profit on special order		$Answer

b. What is the lowest price Greenfield could receive and still make a profit of $5,000 before income taxes on the special order?

Round answer to two decimal places, if applicable.

$Answer

Answer 1