1. Identifying qualitative factors for a special order decision
Required
Describe the qualitative factors that Roddam should consider before accepting the special order described in Exercise 13 5.
2. Using the contribution margin approach for a special order decision
Payne Company, which produces and sells a small digital clock, bases its pricing strategy on a 35 percent markup on total cost. Based on annual production costs for 10,000 units of product, computations for the sales price per clock follow.
|
Unit level costs Fixed costs |
$100,000 50,000 |
|
Total cost (a) |
150,000 |
|
Markup (a x 0.35) |
52,500 |
|
Total sales (b) |
$202,500 |
|
Sales price per unit (b ÷ 10,000) |
$20.25 |
Required
a. Payne has excess capacity and receives a special order for 4,000 clocks for $13 each. Calculate the contribution margin per unit; based on it, should Payne accept the special order?
b. Support your answer by preparing a contribution margin income statement for the special order.