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Rooney Company, which produces and sells a small digital clock, bases its pricing strategy on...

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Accounting

Rooney 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 18,000 units of product, computations for the sales price per clock follow:

Unit-level costs $ 288,000
Fixed costs 72,000
Total cost (a) 360,000
Markup (a 0.25) 90,000
Total sales (b) $ 450,000
Sales price per unit (b 18,000) $ 25

Required

  1. Rooney has excess capacity and receives a special order for 4,000 clocks for $20 each. Calculate the contribution margin per unit. Based on this, should Rooney accept the special order?

  2. Prepare a contribution margin income statement for the special order.

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