Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows:
Direct materials $8
Direct Labor $6
Overhead (2/3 of which is variable) $9
Mazeppa has been approached by a distributor in Montana offering to buy a special order consisting of 30,000 relays. Mazeppa has the capacity to fill the order. However, it will incur an additional shipping cost of $2 for each relay it sells to the distributor.
a.
Assume that Mazeppa is currently operating at a level of 100,000 units. What unit price should it charge the distributor if it wishes to increase operating income by $5 for each unit included in the special order?(Do not round intermediate calculations.)
At a current operating level of 100,000 units, the company will not have to turn away any of its regular customers in order to fill the special order. If it wishes to increase operating income by_____ per unit included in the special order, it only needs to generate a contribution margin per unit of ______. Thus, the selling price per unit included in the special order is ________, as shown below:
Selling price: credit ________
Less: Direct labor________ Debit
Variable overhead _________ Debit
Additional Shipping Costs __________ Debit
Contribution Margin per unit _________
b.
Assume that Mazeppa is currently operating at full capacity. To fill the special order, regular customers will have to be turned away. Now what unit price should it charge the distributor if it wishes to increase total operating income by $60,000 more than it would be without accepting the special order? (Do not round intermediate calculations.)
In order for the company to increase its operating income $60,000 above what it would be without the order the contribution margin per unit included with the special order must be $2 per unit more ($2x30,000 units= $60,000) than the normal contribution margin. The normal contribution margin is the sales price, $28, less all variable costs [ ______ +______ +(2/3x________)], or $8. Thus, the selling price of the special order must cover the additional shipping costs, and still result in a contribution margin of _______ (_____ normal +$2 additional requirement).Therefore, a selling price of _______ is required, as shown belwo:
Selling price credit ___________
Less: Direct materials __________ debit
Variable overhead _________ debit
Additional Shipping costs __________ debit
Contribution margin per unit ____________
