Adm2341 Inc. manufactures and sells a unique product at a normal price of $40 per unit.

The manufacturing costs, based on a production of 300,000 units, is as follows:

DM $10

DL $8

MOH fixed $4

MOH variable $2

Adm2341 Inc. received a special order for 20,000 units from a Korean company.

This special order would require additional direct materials costing $1 per unit and would also require acquisition of a special tool costing $10,000 that would have no other use once the special order was completed.

Adm2341 Inc. has sufficient capacity to manufacture the additional units.

REQUIRED:

What is the relevant cost per unit in considering the special order decision?

What is the minimum sale price of each unit in the special order if Adm2341 Inc.

wants to increase its operating income by $40,000.

Mention and explain 2 qualitative factors, Adm2341 Inc. should consider before making any decision on the special order.

QUESTION 2

SugarOttawa Inc. has three product lines in its retail stores: Raw sugar, Brown sugar and White sugar. Budgeted results for April 2017 follow:

	Raw sugar	Brown sugar	White sugar	Total
Sales $	100,000	150,000	200,000	450,000
Variable costs	48,000	105,000	100,000	253,000
Total fixed costs	40,000	50,000	60,000	150,000
OI	12,000	-5,000	40,000	47,000

Top management of SugarOttawa wonders whether Brown sugar should be dropped because of its weak performance.

Traceable fixed represent 50 % of total fixed costs of each product line. The remaining portion represents allocated fixed costs.

REQUIRED:

What is the impact of dropping the Brown sugar product line?

Determine the OI for SugarOttawa if the Brown sugar product line is dropped.