Engineering  ABC manufactures a new generation of video game console.

ABC manufactures a new generation of video game console. The fixed overheadfor the manufacturing is budgeted for $5,500,000 for 2022. The sales of the game consoles arepredicted to be 400,000 units for the year. All variable costs for the manufacturing areestimated 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 saleprice will be $195 each.(1) Prepare a budgeted income statement for the year 2022 in contribution form ignoringincome taxes.(2) A video game company plans to bundle its games with a game console. If the video gamecompany offers to buy 50,000 units of the game console for $8 million on a one-timespecial order. Assume that ABC has enough manufacturing capacity for the order andthere will be no selling and administrative cost incurred. However, a special commissionof 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 theadditional 15,000 units need to be subcontracted for $125 each, should ABC take thisspecial order?(4) For the special order in (3), what is the highest subcontract price that ABC can accept sothat ABC will not lose money on this special order?

 

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