Packer Concrete Company pours concrete slabs for single-family dwellings. Wolff Construction Company, which operates outside Packer’s normal sales territory, asks Packer to pour 41 slabs for Wolff’s new development of homes. Packer has the capacity to build 350 slabs and is presently working on 110 of them. Wolff is willing to pay only $2,590 per slab. Packer estimates the cost of a typical job to include unit-level materials, $910; unit-level labor, $470; and an allocated portion of facility-level overhead, $730.
Calculate the contribution to profit from the special order.
Selling price = $2,590 per slab
Material cost = $910 per slab
Labor cost = $470 per slab
Variable cost per slab = 910 + 470
= $1,380
Allocated portion of facility-level overhead, $730 is a fixed overhead. Hence, it will not be considered here since it will have to be incurred whether special order from Wolf Construction Company is accepted or not.
Contribution margin per slab = Selling price - Variable cost
= 2,590 - 1,380
= $1,210
Total contribution = Contribution per slab x Quantity to be sold
= 1,210 x 41
= $49,610
Hence, contribution to profit from the special order = $49,610
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