Question
Assume a company with the capacity to produce 50,000 Waggits each year and is selling 44,000 to regular customer yearly. At capacity, the per unit
Assume a company with the capacity to produce 50,000 Waggits each year and is selling 44,000 to regular customer yearly. At capacity, the per unit costs to produce and sell one Waggit is as follows: Variable production costs Fixed manufacturing overhead Variable selling expense Fixed selling expense $ 35 $13 $12 $ 7 The regular selling price for one Waggit is $80. A special order has been received to purchase 8,000 Waggits next year at $60. If this special order is accepted, the variable selling expense will drop to $1. This machine will cost $11,000 and it will have no use after the special order is filled. The total fixed manufacturing overhead and selling expenses would be unaffected by this special order. Assume that direct labor is a variable cost. The annual financial advantage (disadvantage) as a result of accepting this special order should be: $67,000 $192,000 $36,000 $11,000
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