Question

Perez Concrete Company pours concrete slabs for single-family dwellings. Lancing Construction Company, which operates outside Perez’s normal sales territory, asks Perez to pour 51 slabs for Lancing’s new development of homes. Perez has the capacity to build 460 slabs and is presently working on 160 of them. Lancing is willing to pay only $2,550 per slab. Perez estimates the cost of a typical job to include unit-level materials, $870; unit-level labor, $500; and an allocated portion of facility-level overhead, $1,250.
Calculate the contribution to profit from the special order. Should Rooney accept or reject the special order to pour 47 slabs for $2,510 each?

Answer 1

Answer: Rooney should accept as there is a chance to make a profit of $53,580

Explanation:

Rooney has the capacity to build the additional slabs so can do so without stopping other orders.

Revenue should Rooney accept project:

= 47 * 2,510

= $117,970

Cost should Rooney accept project:

= (870 * 47) + (500 * 47)

= $64,390

Total profit:

= 117,970 - 64,390

= $53,580

Rooney should accept as there is a chance to make a profit of $53,580