Question

Benson Company manufactures a personal computer designed for use in schools and markets it under its own label. Benson has the capacity to produce 39,000 units a year but is currently producing and selling only 12,000 units a year. The computer’s normal selling price is $1,730 per unit with no volume discounts. The unit-level costs of the computer’s production are $580 for direct materials, $250 for direct labor, and $170 for indirect unit-level manufacturing costs. The total product- and facility-level costs incurred by Benson during the year are expected to be $2,110,000 and $812,000, respectively. Assume that Benson receives a special order to produce and sell 3,110 computers at $1,300 each.

Required

Calculate the contribution to profit from the special order. Should Benson accept or reject the special order?

Answer 1

Answer:
Particulars	Unit level Costs
Direct materials Cost	$ 580
Direct Labor Cost	$ 250
Indirect unit-level manufacturing costs	$ 170
Relevant Cost per unit	$ 1,000 per unit
Particulars	Amount (in $ )
Sale Price (3,110 Computers x $ 1,300 )	$ 4,043,000
Less: Relevent Costs         ( 3,110 Comp. x $ 1,000)	($ 3,110,000)
Profit on special order	$ 933,000
Since there is a profit, Benson Should Accept the Special Order