The Wild Orchid Corporation is working at full production capacity producing 13,000 units of a unique product, Everlast. Manufacturing cost per unit for Everlast is: Direct materials Variable direct manufacturing labor Manufacturing overhead Total manufacturing cost $10 2 14 $26 Manufacturing overhead cost per unit is based on variable cost per unit of $8 and fixed costs of $78,000 (at full capacity of 13,000 units). Marketing cost per unit, all variable, is $4, and the selling price is $52. A customer, the Apex Company, has asked Wild Orchid to produce 3,500 units of Stronglast, a modifica- tion of Everlast. Stronglast would require the same manufacturing processes as Everlast. Apex has offered to pay Wild Orchid $40 for a unit of Stronglast and share half of the marketing cost per unit.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Suppose Wild Orchid had been working at less than full capacity, producing 9,500 units of Everlast, at the time the Apex offer was made. Calculate the minimum price Wild Orchid should accept for Stronglast under these conditions.

The Wild Orchid Corporation is working at full production
capacity producing 13,000 units of a unique product, Everlast. Manufacturing cost per unit for Everlast is:
Direct materials
Variable direct manufacturing labor
Manufacturing overhead
Total manufacturing cost
$10
2
14
$26
Manufacturing overhead cost per unit is based on variable cost per unit of $8 and fixed costs of $78,000 (at
full capacity of 13,000 units). Marketing cost per unit, all variable, is $4, and the selling price is $52.
A customer, the Apex Company, has asked Wild Orchid to produce 3,500 units of Stronglast, a modifica-
tion of Everlast. Stronglast would require the same manufacturing processes as Everlast. Apex has offered
to pay Wild Orchid $40 for a unit of Stronglast and share half of the marketing cost per unit.
Transcribed Image Text:The Wild Orchid Corporation is working at full production capacity producing 13,000 units of a unique product, Everlast. Manufacturing cost per unit for Everlast is: Direct materials Variable direct manufacturing labor Manufacturing overhead Total manufacturing cost $10 2 14 $26 Manufacturing overhead cost per unit is based on variable cost per unit of $8 and fixed costs of $78,000 (at full capacity of 13,000 units). Marketing cost per unit, all variable, is $4, and the selling price is $52. A customer, the Apex Company, has asked Wild Orchid to produce 3,500 units of Stronglast, a modifica- tion of Everlast. Stronglast would require the same manufacturing processes as Everlast. Apex has offered to pay Wild Orchid $40 for a unit of Stronglast and share half of the marketing cost per unit.
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