Question

eone Corporation sells a product for $21 per unit, and the standard cost card for the product shows the following costs Direct material $2 Direct labor 3 Overhead (70% fixed) 10 Total $15 Refer to Leone Corporation. Leone received a special order for 1,200 units of the product. The only additional cost to Leone would be foreign import taxes of $2 per unit. If Leone is able to sell all of the current production domestically, what would be the minimum sales price that Leone would consider for this special order

Answer 1

Leone Corporation

The minimum sales price that Leone should consider for this special order is:

= $16.20 per unit.

Step-by-step explanation:

a) Data and Calculations:

Normal selling price = $21

Standard costs:

Direct materials $2

Direct labor 3

Overhead (70% fixed) 10

Total $15

Variable costs:

Direct materials $2

Direct labor 3

Overhead (30% fixed) 3

Total $8

Contribution per unit $13 ($21 - $8)

Contribution margin ratio = $62%

Costs of special order:

Variable costs $8 * 1,200 = $9,600

Import taxes $2 * 1,200 = 2,400

Total variable costs = $10

Selling price = $16.20 ($10 * 1.62)