Question

Helix Company has been approached by a new customer to provide 2,000 units of its regular product at a special price of $6 per unit. The regular selling price of the product is $8 per unit. Helix is operating at 75% of its capacity of 10,000 units. Identify whether the following costs are relevant to Helix's decision as to whether to accept the order at the special selling price. No additional fixed manufacturing overhead will be incurred because of this order. The only additional selling expense on this order will be a $0.50 per unit shipping cost. There will be no additional administrative expenses because of this order. Calculate the operating income from the order.

Answer 1

Helix decision would be to accept this order at the special price because from the calculations they will still have a net income of $2,000 at this special price of $6 per unit

Step-by-step explanation:

Selling price: at $6 per unit; This is a relevant cost ; Revenue = ($6*2000) units) $12,000

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Direct material cost: at $1 per unit; This is a relevant cost; Revenue = (1 * 2000) $2000

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Direct labor cost: at $2 per unit; This is a relevant cost ; Revenue = (2 * 2000) $4000

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Variable manufacturing overhead: at $1.50 per unit; This is a relevant cost; Revenue = (1.50 * 2000) $3,000

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Fixed manufacturing overhead: at $0.75 per unif; This is not a relevant cost; Revenue = $0 (not relevant)

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Regular selling expenses: at $1.25 per unit; This is not a relevant cost; Revenue = $0(not relevant)

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Additional selling expenses(shipping cost) : at $0.50 per unit; This is a relevant cost; Revenue = (0.50 * 2000) $1,000

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Administrative expenses: at $0.75 per unit; This is not a relevant cost; Revenue = $0

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Total operating expenses: Sum of all relevant cost = (Direct material cost + Direct labor cost + Variable manufacturing overhead + Additional selling expenses) = ($2,000 + $4,000 + $3,000 + $1,000) = $10,000

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Net income : (Selling price - Total operating expenses)= ($12,000 - $10,000) = $2,000

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Yes, Helix should accept the order at the special price

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Helix decision would be to accept this order at the special price because from the calculations they will still have a net income of $2,000 at this special price of $6 per unit