Special Order Decisions - Managerial Accounting

What is the minimum acceptable price per unit for this special order to break even?
Answer: $77.00 The relevant costs are: Direct materials $35 + Direct labor $25 + Variable overhead $12 + Additional packaging $3 + Setup cost per unit ($2,400 ÷ 1,200) $2 = $77. Fixed overhead is not relevant since it will be incurred regardless. The minimum price to break even is $77.
Omega Corp currently sells 15,000 units annually at $120 per unit with variable costs of $70 per unit. A distributor offers to purchase 4,000 units at $85 per unit, but this would require Omega to provide a 2-year warranty (normally 1 year). The extended warranty is estimated to cost an additional $8 per unit. Current capacity is 20,000 units, but accepting this order would require reducing regular sales by 500 units due to production scheduling constraints. What is the net annual impact on profit?
Answer: Increase by $3,000 Special order contribution: 4,000 × ($85 - $70 - $8) = 4,000 × $7 = $28,000. Lost contribution from reduced regular sales: 500 × ($120 - $70) = 500 × $50 = $25,000. Net impact = $28,000 - $25,000 = $3,000 increase in profit.