art $1$

At the Kicher Company$$s current activity level of $8,000$ units per month, the costs of producing and

selling one unit of the company$$s only product are as follows:

per unit

Direct materials $........................................................................$ $ $5\mathrm{.}00$

Direct labour............................................................................. $ $6\mathrm{.}00$

Variable manufacturing overhead $...........................................$ $ $1\mathrm{.}00$

Fixed manufacturing overhead $................................................$ $ $9\mathrm{.}00$

Variable selling and administrative expenses $..........................$ $ $3\mathrm{.}00$

Fixed selling and administrative expenses $...............................$ $ $4\mathrm{.}00$

The normal selling price is $$26$ per unit. An order has been received from a potential customer overseas

for $4,000$ units at a price of $$24\mathrm{.}00$ per unit. This order would not affect regular sales. The company$$s

capacity is $12,000$ units per month and enough excess capacity exists to fill this order.

Requirements:

$1.($a$)$ If the order is accepted, by how much will monthly profits increase or decrease? $($The order

would not change the company$$s total fixed costs. Show all computations. $\{$Hint: To simply and

organize in an efficient manner, use a table to analyze your decision similar, but not exactly the

same, to the special order tables in Module $14,$ Chapter $10,$ page $523$ of the textbook, being sure

to include all of the relevant$/$incremental costs and benefits from this particular decision.$\}$

$($b$)$ Which costs, if any, are not relevant to this particular one$-$time special order decision?

$2.$ Ignore the one$-$time special order noted above. Instead, assume the company has $500$ units of this

product left over from last year that are inferior to the current model. The units must be sold

through regular channels at reduced prices. What unit cost is relevant for establishing a minimum

selling price for these units? Explain. What would be the minimum selling price per unit in this

situation?

AFM $123/$ ARBUS $102$ Accounting Information for Managers page $2$ of $5$