Calculate Net Contribution?
Direct material $16.40
Direct labor: (.25 hour at $18.00) 4.50
Total manufacturing overhead: (.5 machine hours at $40.00) 20.00
The following additional information is available.
- The normal selling price of the Champion model is $53.00; however, Venus has offered Mercury only $31.50 because of the large quantity it is willing to purchase.
- Venus requires a modification of the design that will allow a $4.20 reduction in direct-material cost.
- Mercury's production supervisor notes that the company will incur $7,400 in additional setup costs and will have to purchase a $4,800 special device to manufacture these units. The device will be discarded once the special order is completed.
- Total manufacturing overhead costs are applied to production at the rate of $40 per machine hour. This figure is based, in part, on budgeted yearly fixed overhead of $1,500,000 and planned production activity of 60,000 machine hours (5,000 per month).
- Mercury will allocate $3,600 of existing fixed administrative costs to the order as "… part of the cost of doing business."
Calculate the net contribution margin.