Question

25. Given the following data:

Sales (in units) 60,000

Selling price per unit 25

Manufacturing costs per unit:

Materials 5

Direct Labor 4

Overhead

    Variable 4

     Fixed 6

  Total 19

Gross Margin 6

Selling and admin. Expenses per unit 2

Operating Income 4

A company in a foregin market offer to buy and the offer

Specifies the following data

Units to be sold 10,000

Price per unit 13

Should the company sell this special order?

1. Yes

2. No

3. Yes, but need to evaluate more of the project

4. indifferent

Answer 1

Fixed overhead is not relevant in decision whether to accept or reject the special offer, since fixed overhead will not increase due to the acceptance of special order.

Price per unit in Foregin market = $13

Variable cost per unit = Direct materials + Direct labor + Variable overhead + Selling and administrative expense

= 5+4+4+2

= $15

Since the price per unit in the special offer is less than variable cost per unit, hence special order should be rejected.

Second option is correct option.

Kindly comment if you need further assistance. Thanks‼!