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    Calculating minimum unit selling

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    North by Northwest Products makes a number of outdoor products. One of their most popular products, a cold weather sleeping bag, has the following unit information:

    Direct Materials
    Thermal filling 10 pounds @ $5.00 per pound
    Fabric 4 yards @ $3 per yard
    Direct Labor 2 hours @ $15.00 per hour
    Variable Overhead $5 per bag
    Fixed Overhead $8 per bag
    Variable Selling 10% of selling price
    Fixed Selling $3 per bag

    Planned production for the year is 25,000 sleeping bags. North by Northwest's maximum capacity, with respect to sleeping bags, is 35,000 units. Planned unit selling price is $150.

    North by Northwest has been approached by a Canadian company about producing a special sub-zero version of the sleeping bag. 15 pounds of material and 3 hours of direct labor will be required for the special sleeping bags. Variable selling costs will be 5% of selling price. Additional administrative costs related to the order will total $4,000. The Canadian company needs 15,000 of the sub-zero sleeping bags.

    North by Northwest will accept the special order if they can earn after tax profits equal to 10% of planned (expected) profits on the special order. North by Northwest's income tax rate is 25%.

    Determine the minimum unit selling price North by Northwest will accept for the special order.

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    https://brainmass.com/business/accounting/calculating-minimum-unit-selling-467393

    Solution Summary

    The expert calculates the minimum unit selling.

    $2.19

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