Given the following data:
Sales (in units) 60,000
Selling price per unit 25
Manufacturing costs per unit:
Materials 5
Direct labor 4
Overhead
Variable 4
Fixed 6
Total 19
Gross margin 6
Selling and admin. Expenses per unit 2
Operating income 4
A company in a foreign market offer to buy and the offer specifies the following data
units to be sold 10,000
price per unit 13.01
Should the company sell this special order?
ANSWER:
Fixed overhead is not relevant in decision whether to accept or reject the special offer, since fixed overhead will not increase due to the acceptance of special order.
Price per unit in Foregin market = $13
Variable cost per unit = Direct materials + Direct labor + Variable overhead + Selling and administrative expense
= 5+4+4+2
= $15
Since the price per unit in the special offer is less than
variable cost per unit, hence special order should be
rejected.
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