Problem
Lang Corporation makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The company's chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment's operating activities. The relevant range for the production and sale of the calculators is between 34,000 and 74,000 units per year.
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Revenue (36,000 units × $12)
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432,000
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Unit-level variable costs
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Materials cost (36,000 × $3)
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(108,000)
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Labor cost (36,000 × $2)
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(72,000)
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Manufacturing overhead (36,000 × $0.10)
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(3,600)
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Shipping and handling (36,000 × $0.25)
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(9,000)
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Sales commissions (36,000 × $2)
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(72,000)
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Contribution margin
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167,400
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Fixed expenses
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Advertising costs
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(29,000)
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Salary of production supervisor
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(68,000)
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Allocated companywide facility-level expenses
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(81,000)
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Net loss
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(10,600)
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Required:
a-1. A large discount store has approached the owner of Lang about buying 7,000 calculators. It would replace The Math Machine's label with its own logo to avoid affecting Lang's existing customers. Because the offer was made directly to the owner, no sales commissions on the transaction would be involved, but the discount store is willing to pay only $5.50 per calculator. Calculate the contribution margin from the special order.(Negative amount should be indicated by a minus sign.)
What is the contribution margin (loss)?