ABC manufactures a new generation of video game console.

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?