Question

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 80,000 units per month is as follows: Direct materials $ 22.50 Direct labor $ 7.50 Variable manufacturing overhead $ 1.70 Fixed manufacturing overhead $ 19.00 Variable selling & administrative expense $ 2.70 Fixed selling & administrative expense $ 8.60 The normal selling price of the product is $67.80 per unit. An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.90 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,600 units for regular customers. The minimum acceptable price per unit for the special order is closest

Answer 1

Direct materials	22.50
Direct labor	7.50
Variable manufacturing overhead	1.70
Variable selling & administrative expense	2.70
Variable cost per unit on normal sales	34.40
Normal selling price	67.80
Less: Variable cost per unit on normal sales	34.40
Contribution margin per unit on normal sales	33.40
Contribution margin lost on normal sales	53440	=1600*33.40
Total variable cost on special order	97500	=3000*(34.40-1.90)
Total Incremental cost of special order	150940
Divide by Units in special order	3000
Minimum acceptable price on special order	50.31