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 to: (Round your intermediate calculations to 2 decimal places.)

Multiple Choice

• $62.00 per unit

• $50.70 per unit

• $67.80 per unit

• $50.31 per unit

Answer 1

Answer:
Particulars	Amount (in $)
Contribution Margin lost on Special Order ( 1,600 Units ) x ( $ 67.80 (-) $ 22.50 (-) $ 7.50(-) $ 1.70 (-) $ 2.70)) ( 1,600 Units x $ 33.40)	$ 53,440
Direct material ( 3,000 units x $ 22.50)	$ 67,500
Direct labor ( 3,000 units x $ 7.50)	$ 22,500
Variable manufacturing overhead ( 3,000 units x $ 1.70)	$ 5,100
Variable selling expense ( 3,000 units x ($ 2.70 (-) $ 1.90))	$ 2,400
Total	$ 150,940
Total Units	3,000 Units
Minimum acceptable price per Unit for the Special Order	$ 50.31 per Unit
Option (d) is Correct