marin company is currently producing 16 000 units per month which is 80 543352 | Homework Solutions
1A Marin Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable manufacturing costs are currently $8.00 per unit. Fixed manufacturing costs are $56,000 per month. Marin pays a 9% sales commission to its sales people, has $30,000 in fixed administrative expenses per month, and is averaging $320,000 in sales per month. A special order received from a foreign company would enable Marin Company to operate at 100% capacity. The foreign company offered to pay 75% of Marins current selling price per unit. If the order is accepted, Marin will have to spend an extra $2.00 per unit to package the product for overseas shipping. Also, Marin Company would need to lease a new stamping machine to imprint the foreign companys logo on the product, at a monthly cost of $2,500. The special order would require a sales commission of $3,500.
Instructions
(a) Compute the number of units involved in the special order and the foreign companys offered price per unit.
(b) What is the manufacturing cost of producing one unit of Marins product for regular customers?
(c) Prepare an incremental analysis of the special order. Should management accept the order?
(d) What is the lowest price that Marin could accept for the special order to earn net income of $1.20 per unit?
(e) What nonfinancial factors should management consider in making its decision?
