Question

Top of the Muffin to You! produces packaged muffin tops for super markets. A pack of muffin tops is sold for $10. The plant can produce 600,000 packs annually (although normally only 450,000 are brought to market). Total manufacturing overhead includes both fixed and variable costs. Unit costs for a pack are below:

Direct material: $2/unit

Direct labor: $3/unit

Total manufacturing overhead: $5/unit

Selling/administrative variable costs (sales commission): $.50/unit

Selling/administrative fixed costs: $2/unit

Fixed manufacturing overhead is $2,000,000.

Our CEO is personally friends with the president of Pendant Publishing, who wants to place a special order of 50,000 muffin top packs at a 7.50 per unit. We save some money on this order since we don't need to pay any sales commissions, but our CFO is still a bit concerned that this deal is a bit too sweet, and they need you (the company's highly paid, highly-respected managerial accounting expert) to help them figure out whether we're losing too much money on the deal.

Calculate total relevant costs for this order

Answer 1

Total cost = Cost per unit * 50,000 units