Revenue
$68,400
$62,500
$52,000
Less: Relevant costs
Direct Materials
$6,200
$2,850
-
Direct Labor
$4,200
$3,300
-
Sales commisions
$2,052
$1,250
$1,560
Sales discount
-
$1,250
-
Variable manufacturing costs
$2,100
$1,650
-
Net benefit
$53,848
$52,200
$50,440
2. If Kaytell makes Miami Industries a counteroffer, what is the lowest price Miami should accept for the rewo
Contribution from 1st alternative sale
$53,848
Contribution from 2nd alternative sale
$52,200
Direct Materials
$6,200
Direct Labor
$4,200
Variable manufacturing costs
$2,100
Total
$64,700
Lowest sales price
$66,701
3. Discuss the influence fixed manufacturing-overhead cost should have on the sales price quoted by Miami In
1. Determine the dollar contribution each of the three alternatives will add to Miami Industries'
before-tax profit.
1st
alternative
2nd
alternative
3rd
alternative
Miami Industries should consider a minimum acceptable sale price of $66,701. This price ensures that the com
machine, and it reaches a point of indifference between selling the machine to Kaytell and converting it into a
Miami Industries' management to prefer the conversion of the machine to a standard model.
Fixed manufacturing overhead costs should not influence the sales price quoted by Miami Industries for speci
should primarily be on marginal costs and revenues. The decision to accept or reject a special order should be
contributes positively to covering fixed costs, as fixed costs are incurred irrespective of the order's acceptance
