Problem: North by Northwest Products makes a number of outdoor products. One of their most popular products, a cold weather sleeping bag, has the following unit information:
Direct Materials
Thermal filling 10 pounds @ $5.00 per pound
Fabric 4 yards @ $3 per yard
Direct Labor 2 hours @ $15.00 per hour
Variable Overhead $5 per bag
Fixed Overhead $8 per bag
Variable Selling 10% of selling price
Fixed Selling $3 per bag
Planned production for the year is 25,000 sleeping bags. North by Northwest's maximum capacity, with respect to sleeping bags, is 35,000 units. Planned unit selling price is $150.
North by Northwest has been approached by a Canadian company about producing a special sub-zero version of the sleeping bag. 15 pounds of material and 3 hours of direct labor will be required for the special sleeping bags. Variable selling costs will be 5% of selling price. Additional administrative costs related to the order will total $4,000. The Canadian company needs 15,000 of the sub-zero sleeping bags.
North by Northwest will accept the special order if they can earn after tax profits equal to 10% of planned (expected) profits on the special order. North by Northwest's income tax rate is 25%.
Determine the minimum unit selling price North by Northwest will accept for the special order.