Question

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one−time−only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular​ customers: Variable​ costs: Direct materials $150 Direct labor 60 Manufacturing support 105 Marketing costs 95 Fixed​ costs: Manufacturing support 155 Marketing costs 55 Total costs 620 Markup ​(45​%) 279 Targeted selling price $899 For Crandle Manufacturers​ Inc., what is the minimum acceptable price of this special​ order?

Answer 1

Answer:

the minimum acceptable price of this special​ order is $410.

Explanation:

Minimum acceptable price for the special order is the price that gives a Incremental contribution margin of zero or a price that covers all costs related to supporting the special offer.

Since the company has excess capacity, ignore the fixed costs as these are irrelevant for this decision

Costs to Provide for the Special Offer : Minimum acceptable price

Direct materials                           $150

Direct labor                                   $60

Manufacturing support               $105

Marketing costs                            $95

Minimum acceptable price         $410