Wagner Company sells Product A for $21 per unit. If Wagner operates at full production capacity of 200,000 units, its manufacturing cost per
unit are as follows:
Direct materials $4.00
Direct labor 5.00
Overhead, 2/3 of which is fixed 6.00
Total $15.00
A special order for 20,000 units was received from a foreign distributor. The foreign distributor offered $14.50 per unit. The only selling costs on this order would be $3.00 per unit for shipping. Wagner has sufficient capacity to manufacture the additional units. Fixed overhead costs would not be affected if the special order is accepted.
Required: (1) Compute the gain or loss if the customers offer is accepted. (2) Calculate the price per unit at which the special order would generate a $20,000 profit before taxes.