Please show work, thanks Eley Corporation produces a single product. The cost of
ID: 2486051 • Letter: P
Question
Please show work, thanks
Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 46,000 units per month is as follows: The normal selling price of the product is $98.10 per unit. An order has been received from an overseas customer for 2,600 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 expense would be $1.80 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,000 units for regular customers. The minimum acceptable price per unit for the special order is closest to: $98.10 $86.10 $69.10 $72.24Explanation / Answer
Since there is no affect on fixed cost while producing extra units it is irrelevant for decision making, the cost to produce 2600 units would be:
Cost per unit:
Direct Material $45.60
Direct Labour $8.70
Variable Manufacturing Overheads $1.70
Variable Selling & Administrative Expense($3-1.8) $1.2
Total relevant cost per unit $57.20
Total Cost = $57.20 * 2600 = $148720
Contribution lost on 1000 units = [$98.10 - (45.6+8.7+1.7+3)] * 1000 = $39.10 * 1000 = $39100
Minimum acceptable price for the special order would be closest to = ($148720 + $39100) / 2600 = $72.24