Jaime Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable manufacturing costs are currently $8.00 per unit. Fixed manufacturing costs are $56,000 per month. Jaime pays a 9% sales commission to its sales people, has $30,000 in fixed administrative expenses per month, and is averaging $320,000 in sales per month.
A special order received from a foreign company would enable Jaime Company to operate at 100% capacity. The foreign company offered to pay 75% of Jaime’s current selling price per unit. If the order is accepted, Jaime will have to spend an extra $2.00 per unit to package the product for overseas shipping. Also, Jaime Company would need to lease a new stamping machine to imprint the foreign company’s logo on the product, at a monthly cost of $2,500. The special order would require a sales commission of $3,500.
Compute the number of units involved in the special order and the foreign company’s offered price per unit. (Round price per unit to 2 decimal places, e.g. $9.75.)
What is the manufacturing cost of producing one unit of Jaime’s product for regular customers? (Round per unit amounts to 2 decimal places, e.g. $9.75.)
Prepare an incremental analysis of the special order. (If an amount reduces the net income for Increase (Decrease) column then enter with a negative sign preceding the number e.g. -15,000 or parenthesis, e.g. (15,000). Enter all other amounts in all other columns as positive and subtract where necessary.)
Should management accept the order?
What is the lowest price that Jaime could accept for the special order to earn net income of $1.20 per unit? (Round per unit amounts to 2 decimal places, e.g. $9.75.)
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