Stuart Company, which produces and sells a small digital clock, bases its pricing strategy on a 25 percent markup on total cost. Based on annual production costs for 20,000 units of product, computations for the sales price per clock follow. Unit-level costs$420,000 Fixed costs 60,000 Total cost (a) 480,000 Markup (a × 0.25) 120,000 Total sales (b)$600,000 Sales price per unit (b ÷ 20,000)$30 RequiredStuart has excess capacity and receives a special order for 7,000 clocks for $24 each. Calculate the contribution margin per unit. Based on this, should Stuart accept the special order?Prepare a contribution margin income statement for the special order.

Contribution margin is a measure of the amount of revenue left over after subtracting the variable…

Answered: Stuart Company

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Stuart Company, which produces and sells a small digital clock, bases its pricing strategy on a 25 percent markup on total cost. Based on annual production costs for 20,000 units of product, computations for the sales price per clock follow.


Unit-level costs	$	420,000
Fixed costs		60,000
Total cost (a)		480,000
Markup (a × 0.25)		120,000
Total sales (b)	$	600,000
Sales price per unit (b ÷ 20,000)	$	30

Required

Stuart has excess capacity and receives a special order for 7,000 clocks for $24 each. Calculate the contribution margin per unit. Based on this, should Stuart accept the special order?
Prepare a contribution margin income statement for the special order.

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