List Price | $22.00 |
Direct Materials | $ 5.35 |
Direct Labor | 5.50 |
Variable Manufacturing Costs | 3.25 |
Fixed Manufacturing Costs | 2.05 |
Variable selling, general & administrative costs | 1.45 |
Fixed selling, general & administrative costs | 1.75 |
Total costs per unit | $ 19.35 |
Special Order price | 15.00 |
Special order volume | 20,000 |
Carly Company produces and sells a consumer goods product. The list price for this product is $22.00 per unit. The product’s per unit costs are provided at left. A potential customer has approached Carly with an offer to purchase 20,000 units of Carly’s primary product at a price of $15.00 per unit. Carly has excess production capacity and could easily fill this order.
What effect would accepting this order have on Carly’s pretax profit? Show your work.
Since Company has excess capacity to fulfill the order the relevant cost for the order is Variable Cost to be incurred: | ||||||
Variable Cost to be Incurred: | ||||||
Direct Material | 5.35 | |||||
Direct Labor | 5.50 | |||||
Variable MOH | 3.25 | |||||
Variable S&A Cost | 1.45 | |||||
Total Relevant Cost | 15.55 | |||||
Special Order Price | 15.00 | |||||
Loss PU | -0.55 | |||||
Special Order Volume | 20000 | |||||
Loss on Accepting the Order | -11000 | (Pretax Value) | ||||
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