Question

Company A manufactures a moderately priced set of lawn games that sells for $125. The company currently manufactures and sells 2,000 sets per year. The manufacturing costs include $40 for direct materials and $15 for direct labor per set. The overhead charge per set is $12, which consists entirely of fixed costs. Company A is considering a special purchase offer from a large retail firm, which has offered to by 500 sets for two years at a price of $110 per set. Company A has the available plant capacity to produce the order and expects no other orders or profitable alternative uses of the plant capacity. What is the total relevant cost per unit to produce the units requested by the retail firm

Answer 1

$27,500

Step-by-step explanation:

As mention in the question the company selling the 2000 seats

also the manufacturing cost is =$40

Direct labor cost =$15

As the seat company A =500 seats

So the Direct Material Cost= seat company A allotment *manufacturing cost

=500*40

=$20,000

Also the Direct labor cost =seat company A allotment *direct labor cost

=$500*$15

=$7500

Therefore the total relevant cost of the firm is

=Direct Material cost +Direct labor cost

=$20,000+$7500

=$27,500