Exercise 23-14 (Algo) Special offer pricing LO P7 Pardo Company produces a single product and has capacity to produce 105,000 units per month. Costs to produce its current monthly sales of 84,000 units follow. The normal selling price of the product is $112 per unit. A new customer offers to purchase 21,000 units for $63.90 per unit. If the special offer is accepted, there will be no additional fixed overhead and no additional fixed general and administrative costs. The special offer would not affect its normal sales. Per Unit Costs at 84,000 Units $12.50 $ 1,050,000 Direct materials Direct labor 15.00 1,260,000
Exercise 23-14 (Algo) Special offer pricing LO P7 Pardo Company produces a single product and has capacity to produce 105,000 units per month. Costs to produce its current monthly sales of 84,000 units follow. The normal selling price of the product is $112 per unit. A new customer offers to purchase 21,000 units for $63.90 per unit. If the special offer is accepted, there will be no additional fixed overhead and no additional fixed general and administrative costs. The special offer would not affect its normal sales. Per Unit Costs at 84,000 Units $12.50 $ 1,050,000 Direct materials Direct labor 15.00 1,260,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Exercise 23-14 (Algo) Special offer pricing LO P7
Pardo Company produces a single product and has capacity to produce 105,000 units per month. Costs to produce its current monthly
sales of 84,000 units follow. The normal selling price of the product is $112 per unit. A new customer offers to purchase 21,000 units for
$63.90 per unit. If the special offer is accepted, there will be no additional fixed overhead and no additional fixed general and
administrative costs. The special offer would not affect its normal sales.
Per Unit Costs at 84,000 Units
$12.50 $ 1,050,000
Direct materials
Direct labor
Variable overhead
Fixed overhead
15.00
Totals
13.00
Fixed general and administrative 13.00
1,260,000
1,092,000
17.50 1,470,000
1,092,000
$71.00 $5,964,000
(a) Compute the income from the special offer.
(b) Should the company accept the special offer?
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