Question: Wagner Company sells Product A for $21 per unit. If Wagner operates at full production capacity of 200,000 units, its manufacturing cost per unit are as follows:
Direct materials $4.00
Direct labor 5.00
Overhead, 2/3 of which is fixed 6.00
Total $15.00
A special order for 20,000 units was received from a foreign distributor. The foreign distributor offered $14.50 per unit. The only selling costs on this order would be $3.00 per unit for shipping. Wagner has sufficient capacity to manufacture the additional units. Fixed overhead costs would not be affected if the special order is accepted.
Required: (Show all of your work, and steps)
(1) Compute the gain or loss if the customer's offer is accepted.
(2) Calculate the price per unit at which the special order would generate a $20,000 profit before taxes.