1. Hopkins manufactures a single product with the following full unit costs for 6,000 units:
Direct materials $ 80
Direct labor 40
Manufacturing overhead (40% variable) 120
Selling expenses (60% variable) 40
Administrative expenses (10% variable) 20
Total per unit $300
A company recently approached Hopkins with a special order to purchase 1,000 units for $275. Hopkins currently sells the models to dealers for $550. Capacity is sufficient to produce the extra 1,000 units. No selling expenses would be incurred on the special order.
Required:
a. Ignoring the special order, determine Hopkins’ profit on production and sales of 6,000 units. Ignore taxes in these analyses.
b. Should Hopkins accept the special order if its goal is to maximize short-run profits? Determine the impact on profit of accepting the order.
c. Determine the minimum price Hopkins would have to charge in order to increase before tax profits by $30,000 on the special order.
d. When making a special order decision, what non-quantitative aspects of the decision should Hopkins consider?
Answer will be sent by email as attachment.
