Question

Collins Co. produces 10,000 units of sewing machines annually. Per unit data are given below: Selling price $150 Direct materials, direct labor, and variable manufacturing overhead 60 Fixed manufacturing overhead 30 Variable selling and administrative expenses 40 Fixed selling and administrative expenses 10 The company has received a special, one-time-only order for 400 units of the product with a selling price of $100. There would be a 60% reduction in variable selling and administrative expenses on this special order. In addition, total fixed manufacturing overhead and total fixed selling and administrative expenses of the company would not be affected by the order. If Collins Co. accepts the order, it will have no effect on other customers. What is the financial advantage or disadvantage of accepting the special order

Answer 1

$9,600 Financial advantage

Step-by-step explanation:

Variable Cost per unit for special order = $60 + $40*40%

Variable Cost per unit for special order = $60 + $16

Variable Cost per unit for special order = $76

The financial advantage or disadvantage of accepting the special order = Sales Revenue from special offer - Variable Cost Cost for special offers

= $100*400 units - $76*400 units

= $40,000 - $30,400

= $9,600 Financial advantage (Disadvantage).