Question

Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows: Sales price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost Per Unit $ 51.50 20.00 10.00 6.00 5.00 $ 41.00 Suppose that Ironwood has been approached about producing a special order for 2,800 units of custom CV sunglasses for a new semiprofessional volleyball league. All units in the special order would be produced in the league's signature colors with a specially designed logo emblem attached to the side of the glasses. The league has offered to pay $49.00 per unit in the special order. Additional costs for the special order total $3.00 per unit for mixing the special frame color and purchasing the emblem with the league's logo that will be attached to the glasses Required: 1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin Ironwood would make by accepting the special order. 2-a. Calculate the current contribution margin per unit. 2-b. Suppose Ironwood is currently operating its production facility at full capacity and accepting the special order would mean reducing production of its regular CV model. Should Ironwood accept the special order in this case? 3. Calculate the special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order. ces Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Reg 3 Assume Ironwood has the idle capacity necessary to accommodate the special orde margin Ironwood would make by accepting the special order. Additional CM Re 1 Req 2A >

Answer 1

$137,200 2,800*$49 1 Evaluation of Special Order Incremental Sales Less: Incremental cost Direct Materials Direct Labor Variable manufacturing overhead Additional cost Total Variable costs Additional Contribution margin $56,000 $28,000 $16,800 $8,400 2,800*$20 2,800*$10 2,800*$6 2,800*$3 $109,200 $28,000 Answer $51.50 2-a Contribution margin per unit Selling price Less : Variable cost Direct Materials Direct Labor Variable manufacturing overhead Total Variable cost Contribution margin per unit $20.00 $10.00 $6.00 $36.00 $15.50 Answer 2-b No There is loss on accepting order Additional Contribution margin Less: Loss of Contribution Net Incremental loss $28,000 $43,400 2,800*$15.5 -$15,400 3 Indifferent price Variable cost Additional processing cost Indifferent price $36.00 $3.00 $39.00 1 Number of half gallons of ice cream 396,000 792,000/2 2 Additional processing cost $106,920 396.000*$0.27 3 No There is incremental loss on further process Final sales value ice cream $2,423,520 396,000* $6.12 Sales value of milk $2,407,680 792,000*$3.04 Incremental revenue $15,8401 Additional processing cost $106,920 Incremental loss -$91,080