Mazeppa Corporation sells relays at a selling price of $28 perunit. The company's cost...

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Accounting

Mazeppa Corporation sells relays at a selling price of $28 perunit. The company's cost per unit, based on full capacity of160,000 units, is as follows: Direct materials $ 8 Direct labor 6Overhead (2/3 of which is variable) 9 Mazeppa has been approachedby a distributor in Montana offering to buy a special orderconsisting of 30,000 relays. Mazeppa has the capacity to fill theorder. However, it will incur an additional shipping cost of $2 foreach relay it sells to the distributor.
a-1. Assume that Mazeppa is currently operating at a level of100,000 units. Show the calculation for the unit price to chargethe distributor which will generate an increase in operating incomeof $3 per unit?
a-2. What is your interpretation of the changes to thecontribution margin per unit and the operating income on account ofthe increase in selling price?
b-1. Assume that Mazeppa is currently operating at fullcapacity. Show the calculation for the unit price to charge thedistributor which will generate an increase in operating income of$60,000 more than it would be without accepting the specialorder?
b-2. What is your interpretation of the changes to thecontribution margin per unit and the operating income on account ofthe unit price charged to the distributor?
Assume that Mazeppa is currently operating at a level of 100,000units. Show the calculation for the unit price to charge thedistributor which will generate an increase in operating income of$3 per unit?
Special Sale
Sellingprice
Less:Direct materials
Directlabor
Variableoverhead
Additional shipping costs 0
Contribution margin per unit $0
What is your interpretation of the changes to the contributionmargin per unit and the operating income on account of the unitprice charged to the distributor?
At acurrent operating level of 100,000 units, the company will not haveto turn away any of its regular
customersin order to fill the special order. If it wishes to increaseoperating income by per
unitincluded in the special order, it only needs to generate acontribution margin per unit of
Thus, theselling price per unit included in the special order is
Assume that Mazeppa is currently operating at full capacity.Show the calculation for the unit price to charge the distributorwhich will generate an increase in operating income of $60,000 morethan it would be without accepting the special order?
Special Sale
Sellingprice
Less:Direct materials
Directlabor
Variableoverhead
Additional shipping costs 0
Contribution margin per unit $0
What is your interpretation of the changes to the contributionmargin per unit and the operating income on account of the unitprice charged to the distributor?
In orderfor the company to increase its operating income $60,000 above whatit would be without the order,
thecontribution margin per unit included with the special order mustbe $2 per unit more ($2 × 30,000 units =
$60,000)than the normal contribution margin. The normal contribution marginis the sales price, $28, less
allvariable costs [ + + (2/3× )], or$8. Thus, the selling price of the
specialorder must cover the additional shipping costs, and still result ina contribution margin of
( normal +$2 additional requirement). Therefore, a selling price of
isrequired.

Answer & Explanation Solved by verified expert

3.9 Ratings (397 Votes)

Part a Cost of each unit for 30000 additional units Particulars Amount Direct materials 800 Direct labour 600 Overhead 9 x 23 600 Total variable costs 2000 Add Additional shipping costs 200 Relevant cost of each unit for additional 30000 units 2200 Add Profit 1300 Unit price to be charged for See Answer

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Transcribed Image Text

In: AccountingMazeppa Corporation sells relays at a selling price of $28 perunit. The company's cost per...Mazeppa Corporation sells relays at a selling price of $28 perunit. The company's cost per unit, based on full capacity of160,000 units, is as follows: Direct materials $ 8 Direct labor 6Overhead (2/3 of which is variable) 9 Mazeppa has been approachedby a distributor in Montana offering to buy a special orderconsisting of 30,000 relays. Mazeppa has the capacity to fill theorder. However, it will incur an additional shipping cost of $2 foreach relay it sells to the distributor.a-1. Assume that Mazeppa is currently operating at a level of100,000 units. Show the calculation for the unit price to chargethe distributor which will generate an increase in operating incomeof $3 per unit?a-2. What is your interpretation of the changes to thecontribution margin per unit and the operating income on account ofthe increase in selling price?b-1. Assume that Mazeppa is currently operating at fullcapacity. Show the calculation for the unit price to charge thedistributor which will generate an increase in operating income of$60,000 more than it would be without accepting the specialorder?b-2. What is your interpretation of the changes to thecontribution margin per unit and the operating income on account ofthe unit price charged to the distributor?Assume that Mazeppa is currently operating at a level of 100,000units. Show the calculation for the unit price to charge thedistributor which will generate an increase in operating income of$3 per unit?Special SaleSellingpriceLess:Direct materialsDirectlaborVariableoverheadAdditional shipping costs0Contribution margin per unit$0What is your interpretation of the changes to the contributionmargin per unit and the operating income on account of the unitprice charged to the distributor?At acurrent operating level of 100,000 units, the company will not haveto turn away any of its regularcustomersin order to fill the special order. If it wishes to increaseoperating income byperunitincluded in the special order, it only needs to generate acontribution margin per unit ofThus, theselling price per unit included in the special order isAssume that Mazeppa is currently operating at full capacity.Show the calculation for the unit price to charge the distributorwhich will generate an increase in operating income of $60,000 morethan it would be without accepting the special order?Special SaleSellingpriceLess:Direct materialsDirectlaborVariableoverheadAdditional shipping costs0Contribution margin per unit$0What is your interpretation of the changes to the contributionmargin per unit and the operating income on account of the unitprice charged to the distributor?In orderfor the company to increase its operating income $60,000 above whatit would be without the order,thecontribution margin per unit included with the special order mustbe $2 per unit more ($2 × 30,000 units =$60,000)than the normal contribution margin. The normal contribution marginis the sales price, $28, lessallvariable costs [++ (2/3×)], or$8. Thus, the selling price of thespecialorder must cover the additional shipping costs, and still result ina contribution margin of(normal +$2 additional requirement). Therefore, a selling price ofisrequired.