Calculate Minimum Price For Break-Even For A Special Order Product
Question
Slugger Products manufactures a single product with the following full unit costs at a volume of 2,000 units:
|
Direct materials |
$900 |
|
Direct labor |
360 |
|
Manufacturing overhead * |
600 |
|
Selling expenses (50% variable) |
300 |
|
Administrative expenses ** |
280 |
|
Total per unit |
$2,440 |
* Note that per unit manufacturing overhead costs include $840,000 fixed costs
** Note that per unit administrative expenses include $500,000 fixed costs.
A company recently approached Slugger’s management about buying 200 units of product. Slugger currently sells its product to dealers for $2,600 per unit. Capacity is sufficient to produce the extra 200 units. No selling expenses would be incurred on the special order.
- What is the minimum price Slugger should charge just to break even on the special order?
- Discuss potential problems Slugger could face if it accepted the order.
Summary
The question belongs to Accounting and it discusses about calculation of minimum price for break-even for a product of special order.
Total Word Count 199