Question
Circuit Masters Incorporated (CMI) is presently operating at 80% of capacity and manufacturing 127,000 units of a patented electronic component. The cost structure of the
Circuit Masters Incorporated (CMI) is presently operating at 80% of capacity and manufacturing 127,000 units of a patented electronic component. The cost structure of the component is as follows:
Raw materials | $ 6.70 | per unit |
---|---|---|
Direct labor | 6.70 | per unit |
Variable overhead | 8.70 | per unit |
Fixed overhead | $ 457,200 | per year |
An Italian firm has offered to purchase 20,700 of the components at a price of $27.50 per unit, FOB CMI's plant. The normal selling price is $34.10 per component. This special order will not affect any of CMI's "normal" business. Management calculated that the cost per component is $25.70, so it is reluctant to accept this special order.
Required:
A.Calculate the fixed overhead per unit?
B.Is the cost calculation appropriate?
C.Should the offer from the Italian firm be accepted?
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