Newport Manufacturing makes and sells backyard fire pits. Each fire pit regularly sells for $269. The following cost data per unit are based on a full capacity of 3,000 fire pits produced each period.
Direct material................................................................... $100
Direct labor............................................................................ $75
Manufacturing overhead (75% of it is variable)................. $64
Total full cost per unit...........................................................$ 239
Newport is negotiating a special order for the sale of 75 fire pits to an overseas customer. The only selling cost that would be incurred on the special order would be a per unit $10 sales commission. Newport is expected to make 2,500 fire pits before the special order.
Required:
a. What is the minimum selling price Newport should negotiate for the special order? ( hint: fixed costs are not affected by this special order since the order amt is below the excess capacity limit. Hence, relevant costs of making the special order will only be variable costs)
b. What are some factors ( qualitative) other than relevant costs that Newport should consider concerning this special order?
(Please note that NOT all information provided above is relevant to the decision addressed. You should therefore isolate irrelevant information. Another aspect involves addressing the constraint limit, so as to figure out opportunity costs, if any. It is recommended you read the PPT slides on Special Order, at the minimum, before attempting this problem. Please show your supporting calculations where applicable.)