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Parker and Spitzer Manufacturing Special Order Minimum Price

Parker and Spitzer Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers:
 
Direct materials $66
Direct labor 30
Variable manufacturing support 48
Fixed manufacturing support 104
Total manufacturing costs 248
Markup (50%) 124
Targeted selling price $372
 
Parker and Spitzer Manufacturing has excess capacity.
 
Required:
a. What is the full cost of the product per unit?
b. What is the contribution margin per unit.
c. Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d. For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order?
e. For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of $200 per unit? Why or why not?

Solution Preview

See excel for computations and procedure. Click in cells to see computations.

per unit
DM $66.00
DL $30.00
VOH $48.00
FOH $104.00
cost per unit $248.00 < --- a.
markup 50%
target selling price $372.00

Sales price $372.00
variable costs $144.00
contribution margin $228.00 < --- b.

What happens at a price of $200?
Sales ...

Solution Summary

See excel for computations and procedure. Click in cells to see computations. Your tutorial shows how to analyze the minimum price and how to determine whether an order will improve or hurts profits (decision criteria).

$2.19