Question

Below are the sales price per unit and the unit cost for each item sold by business segment. The facility level cost is allocated equally across each business segment.

ABC Company A B C Total
Revenue $100 $700 $500 $1,300
Unit level cost (10) (100) (75) (185)
Batch level cost (2) (5) (20) (27)
Product level cost (5) 0 (25) (30)
Facility level cost (90) (90) (90) (270)
Net income ($7) $505 $290 $788

XYZ Company has requested a special order from ABC. It would like to purchase 100 units of Product A for $50 per unit. Should ABC take the special order?
A. Yes
B. No

Answer 1

Yes

The order should be accepted as it will generate $3,300 as contribution

Step-by-step explanation:

The relevant cost of the decision are the the contribution expected to be generated from the special order and any other avoidable fixed cost.

As it stands, there are no directly attributable fixed cost to product A. The allocated fixed cost of $90 is irrelevant to this decision. The cost will be incurred whether or not the special order is accept

Contribution from the order

=(50- 10-2-5) × 100 = $3300

The order should be accepted as it will generate $3,300 as contribution