6 Ingredients produces a single cookbook. The cost of producing and selling one book at the company’s normal activity level of 8000 books per month is as follows:

The normal selling price is \($22\) per book. At present, the business has capacity to produce 10 000 units per month. The book is growing in popularity overseas, and an order for 2500 books at a price of \($20.00\) has been received from an overseas company. This order would not cause a decline in regular sales, but would require the production of an extra 500 books for the month with no change in cost base.

Required:

a. If the order is accepted, by how much will monthly profits be increased or decreased?

b. What other factors might the owners of 6 Ingredients consider in making their decision to accept or reject the new order from overseas?

c. Assume that 6 Ingredients has 1000 books left over from last year, which are inferior to the current edition. The books must be sold through regular channels at reduced prices. What unit cost figure is relevant for establishing a minimum selling price for these books? Explain.

Transcribed Image Text:

Direct materials: $2.50 Direct labour: $4.00 Variable overhead: $1.50 Fixed overhead: $5.00 Variable selling and administrative expenses: $1.50 Fixed selling and administrative expenses: $1.00.