Question

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 53,000 units per month is as follows:

Per Unit
Direct materials $49.10
Direct labor $9.40
Variable manufacturing overhead $2.40
Fixed manufacturing overhead $19.90
Variable selling & administrative expense $4.40
Fixed selling & administrative expense $21.00

The normal selling price of the product is $112.10 per unit.

An order has been received from an overseas customer for 3,300 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.50 less per unit on this order than on normal sales. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $89.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be: _________

a. ($67,000)
b. $22,110
c. $87,780
d. ($55,440)

Answer 1

Answer: $87780

Step-by-step explanation:

The monthly financial advantage (disadvantage) for the company as a result of accepting this special order will be calculated thus:

Sales = $295020

Less Cost:

Material = $162030

Labor = $31020

Variable manufacturing = $7920

Variable selling = $6720

Total cost = $207240

Financial Advantage = $295020 - $207240

= $87780