Mazeppa Corporation sells relays at a selling price of $28 per unit. The company's cost per unit, based on full capacity of 160,000 units, is as follows:

Direct materials $8

Direct Labor $6

Overhead (2/3 of which is variable) $9

Mazeppa has been approached by a distributor in Montana offering to buy a special order consisting of 30,000 relays. Mazeppa has the capacity to fill the order. However, it will incur an additional shipping cost of $2 for each relay it sells to the distributor.

a.
Assume that Mazeppa is currently operating at a level of 100,000 units. What unit price should it charge the distributor if it wishes to increase operating income by $5 for each unit included in the special order?(Do not round intermediate calculations.)

At a current operating level of 100,000 units, the company will not have to turn away any of its regular customers in order to fill the special order. If it wishes to increase operating income by per unit included in the special order, it only needs to generate a contribution margin per unit of . Thus, the selling price per unit included in the special order is , as shown below:

Selling price: credit

Less: Direct labor Debit

Variable overhead Debit

Additional Shipping Costs Debit

Contribution Margin per unit

b.
Assume that Mazeppa is currently operating at full capacity. To fill the special order, regular customers will have to be turned away. Now what unit price should it charge the distributor if it wishes to increase total operating income by $60,000 more than it would be without accepting the special order? (Do not round intermediate calculations.)

In order for the company to increase its operating income $60,000 above what it would be without the order the contribution margin per unit included with the special order must be $2 per unit more ($2x30,000 units= $60,000) than the normal contribution margin. The normal contribution margin is the sales price, $28, less all variable costs [ + +(2/3x)], or $8. Thus, the selling price of the special order must cover the additional shipping costs, and still result in a contribution margin of ( normal +$2 additional requirement).Therefore, a selling price of is required, as shown belwo:

Selling price credit

Less: Direct materials debit

Variable overhead debit

Additional Shipping costs debit

Contribution margin per unit

Solution and explanantion:

Answer A  

The Relevant cost of special order  

Direct material         6  

Direct Labor              4  

Overhead (9*2/3)          6  

Shipping Cost          2  

Total cost                 18  

Add: Profit Increase in operating Income3  

Therefore, the Price to be charged21    

Answer B  

The relevant total cost (18*30000)                 540000  

The loss of contribution magin (28-18)*30000300000  

The desired Increase in operating Income           60000  

The total price                                                  900000  

The No.of Units                                                     30000  

Therefore, the Price to be charged per unit30

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.