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ABC company in Riyadh recently received an offer from a small local discount store for 1,000 summer-weight sleeping bags for SAR 35,000. The company normally
ABC company in Riyadh recently received an offer from a small local discount store for 1,000 summer-weight sleeping bags for SAR 35,000. The company normally sells each bag for SAR 47.50. The cost of each bag has been determined to be as follows: Materials Labor Variable overhead Fixed overhead Total unit costs SAR 15.00 7.50 5.00 15.00 SAR 42.50 Required: 2a: If ABC has excess capacity in its production line and has no alternative use for the space that is idle, what is the relevant cost of each bag for the purpose of analyzing the special-order decision? Show computations [4 marks) 2b. Should the special offer be accepted? Explain your answer. [2 marks]
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