Question

Mojito Manufacturing is approached by a European customer to fulfill a one-time special order for a product similar to aone offered to domestic customers. The following per unit data apply for sales to regular customers:

Direct Materials	$1,782
Direct Labor	810
Variable manufacturing support	1,296
Fixed manufacturing support	2,808
Total manufacturing costs	6,696
Markup (50%)	3,348
Targeted selling price	$10,044

Mojito Manufacturing has excess capacity.

Required

a. What is the full cost of the product per unit if the maketing costs is $3,000?

b. What is the contribution margin per unit?

c. Which costs are relevant for making the decision regarding this one-time-only special ordrer?Why?

d. For Mojito Manufacturing, what is the minimum acceptable price of this one-time-only special order?

e. For this one-time-only special order, should Mojito Manufacturing consider a price of $5,400 per unit? Why or Why not?

Answer 1

a. What is the full cost of the product per unit if the maketing costs is $3,000?

$6,696

b. What is the contribution margin per unit?

= $6156

(Selling price $10044 - $1782 – 810 - 1296).

c. Which costs are relevant for making the decision regarding this one-time-only special ordrer?Why?

Relevant costs for decision making are the incremental costs

Total Relevent costs = $3888 (Variable costs = $1782+810+1296)

.

d. For Mojito Manufacturing, what is the minimum acceptable price of this one-time-only special order?

The minimum acceptable price is $3888 = Variable costs ($1782+810+1296),

e. For this one-time-only special order, should Mojito Manufacturing consider a price of $5,400 per unit? Why or Why not?

Yes, because this price is greater than the minimum acceptable price