Reference no: EM133189435

Question - KadyFen, Inc. manufactures specialty components for farming equipment. One of the components has the following full unit costs for 50,000 units:

KadyFen, Inc. manufactures specialty components for farming equipment. One of the components has the following full unit costs for 50,000 units:

Direct materials $25

Direct labor 10

Manufacturing overhead (60% variable) 24

Selling expenses (40% variable) 14

Administrative expenses (10% variable) 5

Total per unit $78

KadyFen, Inc. manufactures specialty components for farming equipment. One of the components has the following full unit costs for 50,000 units:

Direct materials $25

Direct labor 10

Manufacturing overhead (60% variable) 24

Selling expenses (40% variable) 14

Administrative expenses (10% variable) 5

Total per unit $78

Coldwater, Inc recently approached KadyFen with a special order to purchase 10,000 units for $60. KadyFen currently sells the models to dealers for $100. Capacity is sufficient to produce the extra 10,000 units. Variable selling expenses will be incurred on the special order.

Required -

1. Ignoring the special order, conclude a contribution margin income statement that shows the operating profit of the 50,000 units KadyFen currently sells.

2. Determine the impact on profit of accepting the order. Should KadyFen accept the special order?

3. Determine the minimum price KadyFen would need on the special order so that before tax profits for the company would increase by $205,000 (over their current profit calculated in #1).