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Using the contribution margin approach for a special order decision
Griffin Company, which produces and sells a small digital clock, bases its pricing strategy on a 30 percent markup on total cost. Based on annual production costs for 25,000 units of product, computations for the sales price per clock follow.
Unit-level costs Fixed costs |
$200,000 75,000 |
Total cost (a) Markup (a × 0.30) |
275,000 82,500 |
Total sales (b) |
$357,500 |
Sales price per unit (b ÷ 25,000) |
$ 14.30 |
Required
a. Griffin has excess capacity and receives a special order for 6,000 clocks for $10 each. Calculate the contribution margin per unit; based on it, should Griffin accept the special order?
b. Support your answer by preparing a contribution margin income statement for the special order.
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