Question

A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50). The order would require specialized materials costing $4.00 per unit. Direct labor and variable factory overhead would cost $2.15 per unit. Fixed factory overhead is $1.20 per unit. However, the company has excess capacity and acceptance of the order would not raise total fixed factory overhead. The warehouse, however, would have to add capacity costing $1,300. Which of the following is relevant to the special order?

a.$8.90 selling price per unit of special order
b.$1.20 fixed factory overhead per unit
c.$11.50 normal selling price
d.$7.35 spent on donuts and coffee
e.None of these choices are correct.

Answer 1

What is relevant?

The selling price. The rest of the options will not affect the decision. With that selling price, the offer is profitable, therefore convenient.

Step-by-step explanation:

Giving the following information:

A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50). The order would require specialized materials costing $4.00 per unit. Direct labor and variable factory overhead would cost $2.15 per unit.

Unitary cost= 4 + 2.15 + 1,300/1000= 7.45

What is relevant?

The selling price. The rest of the options will not affect the decision. With that selling price, the offer is profitable, therefore convenient.