Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
$$\begin{array} { l r }
\text { Direct materials } & \$ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead (30\% variable) } & 1,800 \
\text { Selling expenses (50\% variable) } & 900 \
\text { Administrative expenses (10\% variable) } & \$ 80 \
\text { Total per unit } & \$ 6,900
\end{array}$$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.
-Refer to the figure.If Reggie Corporation wants to increase its profit by $18,000 on the special order,what is the minimum price it should charge per unit?

Question

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
$$\begin{array} { l r } 
\text { Direct materials } & \$ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead (30\% variable) } & 1,800 \
\text { Selling expenses (50\% variable) } & 900 \
\text { Administrative expenses (10\% variable) } & \$ 80 \
\text { Total per unit } & \$ 6,900
\end{array}$$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.
-Refer to the figure.If Reggie Corporation wants to increase its profit by $18,000 on the special order,what is the minimum price it should charge per unit?

Quizplus · Accepted Answer

To determine the minimum price that Reggie Corporation should charge per unit on the special order, we need to calculate the total cost per unit and add the desired profit of $18,000.

The total cost per unit includes the variable cost per unit and the portion of fixed costs that are relevant to producing the additional 100 units.

Variable cost per unit = $4,800, calculated as follows: 
Direct materials: $1,800 
Direct labor: $1,600 
Variable overhead: $800 
Total variable cost per unit = $4,200 
Add the portion of fixed costs relevant to the special order: $600 (fixed costs per unit) / 12,000 (total expected units) = $0.05 
Total cost per unit = $4,200 + $0.05 = $4,250

Now we need to add the desired profit of $18,000 and divide by the number of units in the special order: 
($18,000 + ($5,100 - $4,250) * 100) / 100 = $4,164

Therefore, the minimum price that Reggie Corporation should charge per unit on the special order is $4,164. Since this is less than the current selling price of $7,800, it would be a profitable opportunity for the company.

Reggie Corporation Manufactures a Single Product with the Following Unit