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Calculate Minimum Price For Break-Even For A Special Order Product

Question

Slugger Products manufactures a single product with the following full unit costs at a volume of 2,000 units:

Direct materials

$900

Direct labor

360

Manufacturing overhead *

600

Selling expenses (50% variable)

300

Administrative expenses **

280

Total per unit

$2,440

* Note that per unit manufacturing overhead costs include $840,000 fixed costs

** Note that per unit administrative expenses include $500,000 fixed costs.

A company recently approached Slugger’s management about buying 200 units of product. Slugger currently sells its product to dealers for $2,600 per unit. Capacity is sufficient to produce the extra 200 units. No selling expenses would be incurred on the special order.

  1. What is the minimum price Slugger should charge just to break even on the special order?
  2. Discuss potential problems Slugger could face if it accepted the order.

 

Summary

The question belongs to Accounting and it discusses about calculation of minimum price for break-even for a product of special order.

Total Word Count 199

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