Ironwood Companymanufactures a variety of sunglasses. Production information forits most popular line, the Clear Vista (CV),follows:
| Per Unit |
| Sales price | $ | 51.50 |
| Directmaterials | | 20.00 |
| Directlabor | | 10.00 |
| Variablemanufacturing overhead | | 6.00 |
| Fixedmanufacturing overhead | | 5.00 |
| Totalmanufacturing cost | $ | 41.00 |
|
Suppose that Ironwood has been approached about producing a specialorder for 2,800 units of custom CV sunglasses for a newsemiprofessional volleyball league. All units in the special orderwould be produced in the league’s signature colors with a speciallydesigned logo emblem attached to the side of the glasses. Theleague has offered to pay $49.00 per unit in the special order.Additional costs for the special order total $3.00 per unit formixing the special frame color and purchasing the emblem with theleague’s logo that will be attached to theglasses.
Required:
1. Assume Ironwood has the idle capacity necessary toaccommodate the special order. Calculate the additionalcontribution margin Ironwood would make by accepting the specialorder.
2-a. Calculate the current contribution margin perunit. (Round your answer to 2 decimalplaces.)
2-b. Suppose Ironwood is currently operating itsproduction facility at full capacity and accepting the specialorder 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 atwhich Ironwood is indifferent between accepting or rejecting thespecial order. (Round your answer to 2decimal places.)
