Reference no: EM132617512

Dockwiller Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as D53. Data concerning this product are given below:

Per Unit Data

Selling price...................................................... P150

Direct materials................................................ P26

Direct labor ...................................................... P3

Variable manufacturing overhead ................... P1

Fixed manufacturing overhead........................ P17

Variable selling expense................................... P2

Fixed selling and administrative expense ........ P18

The above per unit data are based on annual production of 8,000 units of the component. Direct labor can be considered a variable cost.

Problem 1: The company has received a special, one-time-only order for 500 units of component D53. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Dockwiller has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit on the special order below which the company should not go?

Problem 2: The company has received a special, one-time-only order for 300 units of component D53. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. However, assume that Dockwiller has no excess capacity and this special order would require 30 minutes of the constraining resource, which could be used instead to produce products with a total contribution margin of P1,800. What is the minimum price per unit on the special order below which the company should not go?