Maple company produces a single product. The cost of producing and selling a sin
ID: 2447300 • Letter: M
Question
Maple company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 60,000 units per month is as follows :
Direct materials: $27
Direct labor : $5
Variable manufacturing overhead : $2
Fixed manufacturing overhead : $12
Variable selling and administrative expense $3
Fixed selling & administrative expense : $10
The normal selling price of the product is $65 per unit.
An order has been received from an overseas customer for 2000 units to be delivered this month at a special discounted price. This order would have no effect on the company’s normal sales and would not change the total amount of the company’s fixed costs. The variable selling and administrative expenses would be $1 less per unit on this order than on normal sales. Direct labor is a variable cost in this company.
suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the order is $60 per unit. By how would this special order increase (decrease) the company’s net operating income for the month?
Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would e the opportunity cost of each unit delivered to the overseas customer?
Explanation / Answer
Answer:
special order increase (decrease) the company’s net operating income for the month is $48000.
the opportunity cost of each unit delivered to the overseas customer is $14 per unit.
Particulars Normal Special order Selling Price 3900000 120000 Less: Direct Material 1620000 54000 Direct labor 300000 10000 Variable manufacturing overhead 120000 4000 Contribution 1860000 52000 Variable selling & administrative expenses 180000 4000 Fixed manufacturing overhead 720000 Fixed selling & Administrative exp 600000 Net income 360000 48000