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Part 11: Chip Division of Dellway, Inc.

The Chip Division of Dellway, Inc. produces a high-quality computer chip. Unit production costs (based on capacity production of 100,000 units per year) follow:

Direct material $50
Direct labor 20
Overhead (20% variable) 10
Other information:
Sales price 100
SG&A costs (40% variable) 15

a. Assume, for this question only, that the Chip Division is producing and selling at capacity. What is the minimum selling price that the division would consider on a "special order" of 1,000 chips on which no variable period costs would be incurred?

b. Assume, for this question only, that the Chip Division is operating at a level of 70,000 chips per year. What is the minimum price that the division would consider on a "special order" of 1,000 chips to be distributed through normal channels?

c. Assume, for this question only, that the Chip Division is presently operating at a level of 80,000 chips per year. Accepting a "special order" on 2,000 chips at $88 will

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Solution Summary

The solution shows calculations of minimum selling price for special order.

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Part 11: Chip Division of Dellway, Inc.

The Chip Division of Dellway, Inc. produces a high-quality computer chip. Unit production costs (based on capacity production of 100,000 units per year) follow:

Direct material $50
Direct labor 20
Overhead (20% variable) 10
Other information:
Sales price 100
SG&A costs (40% variable) 15

a. Assume, for this question only, that the Chip Division is producing and selling at capacity. What is the minimum selling price that the division would consider on a "special order" of 1,000 chips on which no variable period costs would be incurred?
Variable period cost = variable SG$A cost =$15 ...

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