Tribute Company is a small Atlantic Canadian manufacturer of a specialty cosmetic bag. The selling price of
Question:
Tribute Company is a small Atlantic Canadian manufacturer of a specialty cosmetic bag. The selling price of each bag is $7.50. Each bag has variable manufacturing costs of $3.60 per bag and total fixed costs at the current production level of $175,000. The cosmetic bags are sold in retail pharmacies and Tribute Company’s sales force earns a 5 percent commission on sales to the retailers. Marketing and administrative costs are fixed costs of $75,000 per year.
One of Tribute’s sales people has received a request for an order of 1,500 cosmetic bags but the retailer is looking for a discounted price. The CEO, Jane Elliott, would like your advice on the following questions. Tribute is operating profitably at 75 percent of its total capacity of 100,000 cosmetic bags.
- What is the minimum selling price Tribute should charge on this special order?
- If Tribute wants a profit of 12 percent of the selling price what is the minimum selling price Tribute should charge on this special order?
- Refer to the original data. If Tribute must incur special set up costs due to this order of $3,250 what is the minimum selling price Tribute should charge on this special order?
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer