Rutkey Collectibles is a small toy company that manufactures andsells metal replicas of classic cars. Each car sells for $3.30 Thecost of each unit follows:
| | | |
| Materials | $ | 0.70 | |
| Labor | | 0.80 | |
| Variable overhead | | 0.30 | |
| Fixed overhead ($17,900 per month, 17,900 units per month) | | 1.00 | |
| Total costs per unit | $ | 2.80 | |
|
One of Rutkey's regular customers asked the company to fill aspecial order of 800 units at a selling price of $2.30 per unit.Rutkey's can fill the order using existing capacity withoutaffecting total fixed costs for the month. However, Rutkey'smanager was concerned about selling at a price below the $2.80 costper unit and has asked for your advice.
Required:
a. Prepare a schedule to show the impact ofproviding the special order of 800 units on Rutkey's profits inaddition to the regular production and sales of 17,900 units permonth.
b. Based solely on the data given, what is thelowest price per unit at which the model cars could be sold for thespecial order without reducing Rutkey's profits?
c. If Rutkey Collectibles company was operatingat capacity, what would happen to operating profit if the specialorder was accepted?
