Question

Golden Industries manufactures a product with the following cost per unit at the expected production of 50000 units.

	Direct materials	$8.54
	Direct labour	11.45
	Variable manufacturing overhead	3.06
	Fixed manufacturing overhead	6.57

The company has the capacity to produce 60000 units. The product regularly sells for $35.94. A regular customer has requested Golden Industries to provide a quote for a special order of 7328 units.

If Golden would like the special order to make a contribution to operating income of $29736, what sales price per unit should be quoted to the customer for the special order?

Select one:

a. $40.00

b. $23.05

c. $35.94

d. $27.11

Answer 1

Solution:

Relevant cost per unit for special order = Direct material + Direct labor + Variable manufacturing overhead

= $8.54 + $11.45 + $3.06 = $23.05

Total cost from special order = 7328 * $23.05 = $168910.40

Target contribution to operating income from special order = $29,736

Sale price per unit to be quoted to the customer = (Relevant cost from special order + Target income) / Nos of units in special order

($168,910.40 + $29,736) / 7328 = $27.11 per unit

Hence option d is correct.