The Melrose Corporation produces a single product, Product C. Melrose has the ca

ID: 2543889 • Letter: T

Question

The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 72,000 units of Product Ceach year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product are as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overheac Variable selling expense Fixed selling expense $20.70 17.40 13.30 14.50 12.20 $ 8.10 The regular selling price of one unit of Product C is $91.20. A special order has been received by Melrose from Moore Corporation to purchase 3,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced b 75% Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unlt of product C in the special order. The machine will cost $5,400 and will have no use after the special order is filled. Assume that direct labor is a vartable cost. Assume that Melrose expects to sell 62,000 unlts of Product C to regular customers next year. At what selling price for the 3,000 unlts would Melrose be economically Indifferent between accepting and rejecting the speclal order from Moore? ·S5625 O $54.75 $78.25 O$7675

Explanation / Answer

Calculation of selling price per unit of special order

Direct materials

$20.70

Direct labour

$17.40

Variable manufacturing exp

$13.30

Variable selling exp (12.20*25%)

$3.05

Machine cost for special order (3,000/5,400)

$1.80

Selling price for special order

$56.25

Ans

Option (A) $56.25