eone Corporation sells a product for $21 per unit, and the standard cost card for the product shows the following costs Direct material $2 Direct labor 3 Overhead (70% fixed) 10 Total $15 Refer to Leone Corporation. Leone received a special order for 1,200 units of the product. The only additional cost to Leone would be foreign import taxes of $2 per unit. If Leone is able to sell all of the current production domestically, what would be the minimum sales price that Leone would consider for this special order

Leone Corporation

The minimum sales price that Leone should consider for this special order is:

= $16.20 per unit.

Explanation:

a) Data and Calculations:

Normal selling price = $21

Standard costs:

Direct materials          $2

Direct labor                   3

Overhead (70% fixed) 10

Total                          $15

Variable costs:

Direct materials          $2

Direct labor                   3

Overhead (30% fixed)  3

Total                           $8

Contribution per unit $13 ($21 - $8)

Contribution margin ratio = $62%

Costs of special order:

Variable costs $8 * 1,200 = $9,600

Import taxes $2 * 1,200 =      2,400

Total variable costs = $10

Selling price = $16.20 ($10 * 1.62)