Question

Exercise 6-6A Special order decision LO 6-2 Thornton Concrete Company pours concrete slabs for single-family dwellings. Lancing Construction Company, which operates outside Thornton's normal sales territory, asks Thornton to pour 52 slabs for Lancing's new development of homes. Thornton has the capacity to build 490 slabs and is presently working on 110 of them. Lancing is willing to pay only $2,620 per slab. Thornton estimates the cost of a typical job to include unit-level materials, $940; unit-level labor, $550; and an allocated portion of facility-level overhead, $1,180. Required Calculate the contribution to profit from the special order. Should Thornton accept or reject the special order to pour 52 slabs for $2,620 each? Contribution to profit Should Thornton accept or reject the special order? Accept

Answer 1

Incremental revenue	136240	=52*2620
Less: Incremental costs
Materials	48880	=52*940
Labor	28600	=52*550
Total Incremental costs	77480
Contribution to profit	58760

Accept the special order, as contribution to profit is positive