What will be the minimum price per unit for special order

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Reference no: EM133079078

Question - Yellow Moon Corporation manufactures sleeping bags; the selling price of the regular product is $180, while the manufacturing costs per unit were as follows:

Details

Per unit

1,000 units

Direct materials

90

90,000

Direct labor

30

30,000

Manufacturing overhead 60% variable

15

15,000

Fixed selling costs

20

20,000

Total

155

155,000

Yellow Moon Corporation received a special order to manufacture 300 sleeping bags for $140 per unit.

These sleeping bags require special materials that will cost less $8 per unit; labor cost for these sleeping bags will remain the same.

Fixed selling costs represents the cost of Yellow Moon Corporation's annual advertising campaign.

The current equipment is working in full capacity, accordingly accepting the special order will require buying new equipment that will cost $6,500. This equipment will not be used for increasing production capacity for Yellow Moon Corporation.

Required -

1. Should the special order be accepted? Show your computations.

2. If your recommendation was not to accept the special order; what will be the minimum price per unit for special order to be accepted based on CM ratio of original product?

Reference no: EM133079078

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