Bert Asiago, as salesperson at Convertco, received an order from a potential new customer for 50,000 unitsof the company's single product. The price came in at $25 below the regular selling price of $65. Asiagoknows that Convertco has the capacity to produce the product without affecting regular sales. He spoke toBia Morgan, the controller, who informed him that at the $40 selling price, it's $42 of variable costs won't becovered. She recommends rejecting the order.Bert knows that $4 of the $42 per unit in variable cost is due to sales commission. If he accepts a commissionof $2 per unit, that will make contribution margin per unit zero. He wants to try this in hopes that a new,regular customer might be obtained.1. Determine CM/unit per the controller2. Determine CM/unit under Bert's plan3. Do you recommend this special order? Why or why not?4. What other factors should management consider?

Answered: 1. Determine CM/unit per the controller…

1. Determine CM/unit per the controller 2. Determine CM/unit under Bert's plan 3. Do you recommend this special order? Why or why not? 4. What other factors should management consider?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Bert Asiago, a salesperson for Convertco, received an order from a potential new customer for 50,000 units of Convertco’s single product at a price $25 below its regular selling price of $65. Asiago knows that Convertco has the capacity to produce this order without affecting regular sales. He has spoken to Convertco’s controller, Bia Morgan, who has informed Asiago that at the $40 selling price, Convertco will not be covering its variable costs of $42 for the product, and she recommendsthe order not be accepted. Asiago knows that variable costs include his sales commission of $4 per unit. If he accepts a $2 per unit commission, the sale will produce a contribution margin of zero. Asiago is eager to get the new customer because he believes that this could lead to the new customer becoming a regular customer.
Bert Asiago, a salesperson for Convertco, received an order from a potential new customer for 50,000 units of Convertco’s single product at a price $25 below its regular selling price of $65. Asiago knows that Convertco has the capacity to produce this order without affecting regular sales. He has spoken to Convertco’s controller, Bia Morgan, who has informed Asiago that at the $40 selling price, Convertco will not be covering its variable costs of $42 for the product, and she recommends the order not be accepted. Asiago knows that variable costs include his sales commission of $4 per unit. If he accepts a $2 per unit commission, the sale will produce a contribution margin of zero. Asiago is eager to get the new customer because he believes that this could lead to the new customer becoming a regular customer. Required 1. Determine the contribution margin per unit on the order as determined by the controller. 2. Determine the contribution margin per unit on the order as determined by…
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