Question

Golden Generator Supply is approached by Mr. Stephen, a new customer, to fulfill a large one-time-only special order for a product similar to one offered to regular customers. Golden Generator Supply has excess capacity. The following per unit data apply for sales to regular customers: Direct materials $180 Direct manufacturing labor 170 Variable manufacturing support 250 Fixed manufacturing support 140 Total manufacturing costs 740 Markup (10% of total manufacturing costs) 74 Estimated selling price $814 For Golden Generator Supply, what is the minimum acceptable price of this one-time-only special order

Answer 1

See below

Step-by-step explanation:

The price that gives incremental contribution margin of zero or a price that covers all costs associated with the special order is termed minimum acceptable price.

According to the above scenario, the company has excess capacity hence the fixed cost would not be considered as they are not relevant with regards to this decision.

Costs to provide for the special offer:

Minimum acceptable price

Direct materials

$180

Direct manufacturing labor

$170

Variable manufacturing support

$250

Minimum acceptable price

$600