Company manufactures a variety of sunglasses. Produ

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows:
Per Unit
$37.50
Sales price:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total manufacturing cost
6.00
3.00
2.00
5.00
$ 16.00
Suppose Ironwood has been approached about producing a special order for 2,000 units of custom CV sunglasses for a new
semiprofessional volleyball league. All units in the special order would be produced in the league's signature colors with a specially
designed logo emblem attached to the side of the glasses. The league has offered to pay $32.00 per unit in the special order.
Additional costs for the special order total $2.00 per unit for mixing the special frame color and purchasing the emblem with the
league's logo that will be attached to the glasses.
Required:
1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin
Ironwood would make by accepting the special order.
2-a. Calculate the current contribution margin per unit.
2-b. Suppose Ironwood is currently operating its production facility at full capacity and accepting the special order would mean
reducing production of its regular CV model. Should Ironwood accept the special order in this case?
3. Calculate the special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order.
Transcribed Image Text:Ironwood Company manufactures a variety of sunglasses. Production information for its most popular line, the Clear Vista (CV), follows: Per Unit $37.50 Sales price: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing cost 6.00 3.00 2.00 5.00 $ 16.00 Suppose Ironwood has been approached about producing a special order for 2,000 units of custom CV sunglasses for a new semiprofessional volleyball league. All units in the special order would be produced in the league's signature colors with a specially designed logo emblem attached to the side of the glasses. The league has offered to pay $32.00 per unit in the special order. Additional costs for the special order total $2.00 per unit for mixing the special frame color and purchasing the emblem with the league's logo that will be attached to the glasses. Required: 1. Assume Ironwood has the idle capacity necessary to accommodate the special order. Calculate the additional contribution margin Ironwood would make by accepting the special order. 2-a. Calculate the current contribution margin per unit. 2-b. Suppose Ironwood is currently operating its production facility at full capacity and accepting the special order would mean reducing production of its regular CV model. Should Ironwood accept the special order in this case? 3. Calculate the special order price per unit at which Ironwood is indifferent between accepting or rejecting the special order.
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