Check my work 0 Required information [The following information applies to the q

ID: 2529671 • Letter: C

Question

Check my work 0 Required information [The following information applies to the questions displayed below.] Corrientes Company produces a single product in its Buenos Aires plant that currently sells for 6.20p per unit. Fixed costs are expected to amount to 55,000p for the year, and all variable manufacturing and administrative costs are expected to be incurred at a rate of 2.50p per unit. Corrientes has two salespeople who are paid strictly on a commission basis. Their commission is 9 percent of the sales revenue they generate. (Ignore income taxes.) (p denotes the peso, Argentina's national currency. Many countries use the peso as their national currency. On the day this exercise was written, Argentina's peso was worth 104 U.S. dollar.) 2. The Sorde Company has just approached Corrientes to make a special one-time purchase of 18,000 units. These units would not be sold by the sales personnel, and, therefore, no commission would have to be paid. What is the price Corrientes would have to charge per unit on this special order to earn additional profit of 39,60°p? (Round your answer to 2 decimal places. Enter your answer in pesos.) uni Sales price required

Explanation / Answer

Solution:

It is assumed that the company has the idle capacity to produce these special order units without losing their regular sales.

In this type of question relevant cost related to special order should be considered.

Relevant Cost is the cost which incur in future and different under each alternative course of action.

In the given question, the relevant cost is 2.50p per unit variable manufacturing and administration costs because this cost will incur in future and depends solely on the decision whether to accept special order or not.

Fixed Costs and Commission will not incur in future and not related to the special order hence it is treated as irrelevant cost for the pricing of special order.

Calculation of Charge per unit on the special order to earn additional profit of 39,600p

Special Order Units

18,000 Units

Relevant Cost per unit for special order as explained above

2.5p per unit

Total Relevant Cost for special order

45,000p

(18,000*2.5p)

Plus: Desired Profit

39,600p

Required Selling Price for special order

84,600p

(45,000 + 39,600)

Charge Per Unit for Special Order

(Total Required Sales Value for Special Order / Number of Units of Special Order

4.70p

(84,600 / 18,000 Units)

Sales Price Required 4.70 p per unit

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