Exercise 66A Special order decision LO 62 Baird Concrete Com

Exercise 6-6A Special order decision LO 6-2 Baird Concrete Company pours concrete slabs for single-family dwellings. Lancing Construction Company, which operates outside Baird\'s normal sales territory, asks Baird to pour 54 slabs for Lancing\'s new development of homes. Baird has the capacity to build 300 slabs and is presently working on 230 of them. Lancing is willing to pay only $2,690 per slab. Baird estimates the cost of a typical job to include unit-level materials, $870; unit-level labor, $490; and an allocated portion of facility-level overhead, $1,410. Required Calculate the contribution to profit from the special order. Should Baird accept or reject the special order to pour 54 slabs for $2,690 each? Contribution to profit Should Baird accept or reject the special order?

Solution

Revenue per slab = $2,690
Materials Cost per slab = $870
Labor Cost per slab = $490

Contribution Margin per slab = Revenue per slab - Materials Cost per slab - Labor Cost per slab
Contribution Margin per slab = $2,690 - $870 - $490
Contribution Margin per slab = $1,330

Contribution to Profit = Contribution Margin per slab * Number of slabs
Contribution to Profit = $1,330 * 54
Contribution to Profit = $71,820

Baird should accept this special order as Baird will earn extra profit of $71,820 from this order