Question

Rundle Company manufactures a personal computer designed for use in schools and markets it under its own label. Rundle has the capacity to produce 43,000 units a year but is currently producing and selling only 17,000 units a year. The computer’s normal selling price is $1,640 per unit with no volume discounts. The unit-level costs of the computer’s production are $540 for direct materials, $160 for direct labor, and $100 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Rundle during the year are expected to be $2,270,000 and $808,000, respectively. Assume that Rundle receives a special order to produce and sell 3,140 computers at $1,240 each. Required Calculate the contribution to profit from the special order. Should Rundle accept or reject the special order?

Answer 1

Answer:

The contribution to profit from the special order is $1,381,600 and yes the special order should be accepted

Explanation:

In this question, we have to determine the total cost between two situations which are shown below:

On Special order:

Total cost = Number of computers sold × price per computer

                =  3,140 computers × $1,240

                = $3,893,600

On normal level

Total cost = Number of computers sold × total units cost

                = 3,140 computers × $800

                = $2,512,000

The total unit cost includes $540 for direct materials, $160 for direct labor, and $100 for indirect unit-level manufacturing costs. If we add these three unit cost than it come $800

By comparing these above situations, the difference would be $1,381,600 which reflect the contribution to profit from the special order

And, the benefit of  $1,381,600 is from the special order, so the special order should be accepted.