ABC manufactures a new generation of video game console. The fixed overhead
for the manufacturing is budgeted for $5,500,000 for 2022. The sales of the game consoles are
predicted to be 400,000 units for the year. All variable costs for the manufacturing are
estimated to be $95 per unit. The selling and administrative expenses are budgeted for
$4,800,000 and of which, $1,850,000 of them are variable expenses. The game console’s sale
price will be $195 each.
(1) Prepare a budgeted income statement for the year 2022 in contribution form ignoring
income taxes.
(2) A video game company plans to bundle its games with a game console. If the video game
company offers to buy 50,000 units of the game console for $8 million on a one-time
special order. Assume that ABC has enough manufacturing capacity for the order and
there will be no selling and administrative cost incurred. However, a special commission
of 7% of the sales of this special order will apply. Should ABC take this special order?
(3) For the special order in (2), if ABC only has extra capacity of 35,000 units and the
additional 15,000 units need to be subcontracted for $125 each, should ABC take this
special order?
(4) For the special order in (3), what is the highest subcontract price that ABC can accept so
that ABC will not lose money on this special order?
