Problem-
Slugger Products manufactures a single product with the following full unit costs at a volume of 2,000 units:
|
Direct materials
|
$900
|
|
Direct labor
|
360
|
|
Manufacturing overhead *
|
600
|
|
Selling expenses (50% variable)
|
300
|
|
Administrative expenses **
|
280
|
|
Total per unit
|
$2,440
|
* Note that per unit manufacturing overhead costs include $840,000 fixed costs
** Note that per unit administrative expenses include $500,000 fixed costs.
A company recently approached Slugger's management about buying 200 units of product. Slugger currently sells its product to dealers for $2,600 per unit. Capacity is sufficient to produce the extra 200 units. No selling expenses would be incurred on the special order.
- What is the minimum price Slugger should charge just to break even on the special order?
- Discuss potential problems Slugger could face if it accepted the order.
Additional information-
This problem relates to Basic Accounting problem and it discuss about calculation of minimum price for break-even for a product of special order.