Question

ABC Inc. manufactures and sell product A. The sale price and costs on a per unit...

ABC Inc. manufactures and sell product A. The sale price and costs on a per unit basis, when

20,000 units

per month

are sold, are as follows:

Manufacturing costs:

Direct materials used

$2.00

Direct labour

$1.00

MOH variable

$1.20

MOH fixed

$1.10

Selling expenses

Variable

$4.00

Fixed

$1.10

Sale price per unit

$15

c.

ABC Inc. received a special order from Africa Co., headquarter located in

Zimbabwe, for 5,000 units at 6 $ each. The variable selling expenses on this

special order will decrease by 40% and fixed expenses will increase by $5,000.

c1.

Would you recommend to ABC Inc. to accept or reject the special order?

Support your answer with appropriate computations.

c2.

What is the lowest sale price that ABC Inc. should ask from Africa Co.?

Show your computations?

c3.

Provide and explain 3 qualitative factors, ABC Inc. should consider before

making any decision to accept or reject the special order from Africa Co

Business   Accounting   
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Homework Answers

Answer #1
Incremental analysis:
Incremental revenue (5000*6) 30000
Less: Variable cost
Material (5000*2) 10000
Labour (5000*1) 5000
MOH (5000*1.20) 6000
Selling expenses (5000*4)*60% 12000
Less: Additional fixed cost 5000
Incremental loss -8000
The offer shall not be accepted
The Minimum price of offer:
Price already offered 6
Add: Loss per unit (8000/5000) 1.6
Lowest sale price 7.6
Other Qualitative facrtors:
* Loss f sale of regular customer
* Regular customer will demand the price cut as well.
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