Question

Elfalan 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 41,000 units per month is as follows:



Per Unit
Direct materials $ 43.10
Direct labor $ 8.20
Variable manufacturing overhead
$ 1.20
Fixed manufacturing overhead
$ 17.50
Variable selling & administrative expense $ 2.00
Fixed selling & administrative expense $ 9.00


The normal selling price of the product is $88.10 per unit.

An order has been received from an overseas customer for 2,100 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.30 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 special order is $77.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Answer 1

Answer:

$50,820

Explanation:

Current Variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead + Variable selling and administrative expense

= $43.10 + $8.20 + $1.20 + $2.00 = $54.50 per unit  

Variable cost per unit for special order = $54.50 - $1.30 = $53.20 per unit  

Selling price per unit for special order = $77.40 per unit  

Contribution margin per unit for special order = $77.40 - $53.20 = $24.20 per unit  

Number of units for Special order = 2,100 units  

Monthly financial advantage for special order = $24.20 * 2,100 units = $50,820

Hope this helps!