Question
Circuit Masters Incorporated (CMI) is presently operating at 80% of capacity and manufacturing 118,000 units of a patented electronic component. The cost structure of the
Circuit Masters Incorporated (CMI) is presently operating at 80% of capacity and manufacturing 118,000 units of a patented electronic component. The cost structure of the component is as follows: Raw materials $ 8.00 per unit Direct labor 8.00 per unit Variable overhead 10.00 per unit Fixed overhead $ 578,200 per year An Italian firm has offered to purchase 22,000 of the components at a price of $34.00 per unit, FOB CMI's plant. The normal selling price is $38.00 per component. This special order will not affect any of CMI's "normal" business. Management calculated that the cost per component is $30.90, so it is reluctant to accept this special order. Required: Calculate the fixed overhead per unit? Is the cost calculation appropriate? Should the offer from the Italian firm be accepted?
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