Alton Inc. is working at full production capacity producing 25,000 units of a uniqueproduct. Manufacturing costs per unit for the product are as follows:Direct materials$ 6Direct labor5Manufacturing overhead7Total manufacturing cost per unit$18The per-unit manufacturing overhead cost is based on a $4 variable cost per unit and$75,000 fixed costs. The nonmanufacturing costs, all variable, are $6 per unit, and thesales price is $31 per unit.Sports Headquarters Company (SHC) has asked Alton to produce 6,000 units of amodification of the new product. This modification would require the samemanufacturing processes. However, because of the nature of the proposed sale, theestimated nonmanufacturing costs per unit are only $3 (not $6). Alton would sell themodified product to SHC for $21 per unit.Required1-a. Calculate the contribution margin for 6,000 units for both the current and specialorder.1-b. Should Alton produce the special order for SHC?2. Suppose that Alton Inc. had been working at less than full capacity to produce20,500 units of the product when SHC made the offer. What is the minimum price perunit that Alton should accept for the modified product under these conditions?

Variable cost is the production cost that will change with the change of production level of the…

Required 1-a. Calculate the contribution margin for 6,000 units for both the current and special order. 1-b. Should Alton produce the special order for SHC? 2. Suppose that Alton Inc. had been working at less than full capacity to produce 20,500 units of the product when SHC made the offer. What is the minimum price per unit that Alton should accept for the modified product under these conditions?

Required 1-a. Calculate the contribution margin for 6,000 units for both the current and special order. 1-b. Should Alton produce the special order for SHC? 2. Suppose that Alton Inc. had been working at less than full capacity to produce 20,500 units of the product when SHC made the offer. What is the minimum price per unit that Alton should accept for the modified product under these conditions?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter8: Cost Analysis

Section: Chapter Questions

Problem 5E

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