Posted: August 31st, 2016

What if the company only paid $225.00 per unit

Differential Analysis-knowing which costs are relevant etc.
Lewis company:
production and sales information for Lewis Company.
Product information
Prod B
Beginning inventory
0
Units produced
10,000
Units sold
9,000
Selling price per unit
$300
Variable costs per unit
Direct material
120
Direct labor
60
Variable overhead
40
Variable selling and administrative
10
Fixed costs
Fixed manufacturing overhead
250,000
Fixed selling and administrative
100,000
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Lewis Company
Absorption Income Statement
For the period ending Dec. 31, 2012
Sales
$2,700,000
Cost of goods sold
2,205,000
Gross profit (margin)
$495,000
Selling and administrative expenses
180,000
Net income
$315,000
Lewis Company receives an offer to make a new product for a new customer. The product is called C. Customer wants 1100 units. Product see has the same cost structure as Product B above with three exceptions. The new customer will only pay $245.00 per unit. Direct materials costs will onlu decrease $15 per unit and Lewis does not have to incur any variable selling and admin expenses.
Make a list of expenses and amounts that are relevent for this decision. How much with the sale of this product contributes to the profitability of Lewis?
What if the company only paid $225.00 per unit. How does that change the contribution towards profitability? If you were the manager would you accept this order? What cosiderations other than financial would affect the decision?