Question

Benson Company, which produces and sells a small digital clock, bases its pricing strategy on a 25 percent markup on total cost. Based on annual production costs for 10,000 units of product, computations for the sales price per clock follow: $150,000 50,000 Unit-level costs Fixed costs Total cost (a) Markup (a x 0.25) Total sales (b) 200,000 50,000 $250,000 25 Sales price per unit (b 10,000) Required a. Benson has excess capacity and receives a special order for 7,000 clocks for $21 each Calculate the contribution margin per unit. Based on this, should Benson accept the special order? b. Prepare a contribution margin income statement for the special order. Complete this question by entering your answers in the tabs below. Required A Required B Benson has excess capacity and receives a special order for 7,000 clocks for $21 each. Calculate the contri bution margin per unit. Based on this, should Benson accept the special order? Show less Contribution margin per unit Should Benson accept the special order? Required A Required B

Answer 1

(A)

Contribution Margin per unit	$6
Should Benson accept the special order?	Accept

Contribution margin is equal to selling price less variable cost. Observe:

Selling Price per Unit	$21
Variable Cost per Unit ($150000 / 10000)	($15)
Contribution Margin	= $6

Since the contribution margin is positive and Benson has excess capacity, the order should be accepted.

(B)

Sales ($21 x 7000)	$147000
Less: Variable Cost ($15 x 7000)	($105000)
Contribution Margin	$42000