Should the company take this special order

Reference no: EM131015159

ABC Electronics manufactures Blue-Ray drive, which has a fixed manufacturing overhead budget for year 20X3 of $2,000,000. The sales of Blue-Ray drive are expected to be 500,000 units for the year. All variable manufacturing costs are expected to be $8 per unit. The company has budgeted $5,000,000 for selling and administrative expenses and of which, 40% of them are variable expenses. The sale price of the Blue-Ray drive will be $30 each.

(1) Prepare a budgeted income statement for the year in contribution form ignoring income taxes.

(2) If a computer manufacturer offers to buy 200,000 units of Blue-Ray drive for $2 million on a one-time special order. Assume that ABC Electronics has enough manufacturing capacity for the order and there will be no selling and administrative cost incurred. However, a special commission of 5% of the sales of this special order will apply. Should the company take this special order?

(3) For the special order in (2), if ABC Electronics only has extra capacity of 100,000 units and the additional 100,000 units need to be subcontracted for $15 each, should the company take this special order?

(4) For the special order in (3), what is the highest subcontract price that the company can accept so that the company will not lose money on this special order?

Reference no: EM131015159

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