Question

Zobrist has received a special order for 2,000 units of its product at a special price. The product normally sells for $400 and has the following manufacturing costs: Direct Materials $120/unit, Direct Labor $80/unit, Variable Manufacturing Overhead $60/unit, Fixed Manufacturing Overhead $100/unit.Assume that Zobrist has sufficient capacity to fill the order. What special order price per unit should Zobrist charge to make a $20,000 incremental profit?

a) $360

b) $260

c) $270

d) $400

Answer 1

incremental profit needed= 20,000
incremental profit needed per unit= 20,000/2000=10

calculation of price to be charged

direct material cost per unit	120
direct labour cost per unit	80
variable manufacturing overhead	60
profit margin needed	10
price to be charged(total)	270

hence the price to be charged is sum total of incremental cost to be incurred on the production and the profit margin required. fixed cost is not considered because fixed cost remain unchanged whether the order is completed or not.

the correct option is C-- 270