Question

The following cost information pertained to the Violin Division of Stringing Music Co. and was based on monthly demand and sales of 100 units:

Per-Unit Costs Variable production costs:
Direct materials $140
Direct labor 170
Variable factory overhead 80
Fixed production costs:
Depreciation (equipment) 40
Factory rent 68
Other 16
Total production cost $514
Variable selling & administrative costs $24 per unit
Fixed selling & administrative costs $36 per unit

Assume that the Violin Division was evaluating whether or not it would accept a special sales order for 10 violins at $390 per unit. For this purpose, total relevant cost per unit (given the costs stated above) is:

a. $330
b. $342
c. $390
d. $366
e. $354

Answer 1

Total relevant costs= $390

Step-by-step explanation:

I will assume that the company has unused capacity and that the special offer will not affect the current sales. Given these assumptions, the fixed costs would not be taken into account.

Relevant costs:

Direct materials $140

Direct labor 170

Variable factory overhead 80

Total relevant costs= $390