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Cushions Pty Ltd. is specialised in manufacturing pillows. The pillows are branded as a product of Australia, meaning that all materials come from Australia; and
Cushions Pty Ltd. is specialised in manufacturing pillows. The pillows are branded as a product of Australia, meaning that all materials come from Australia; and all the manufacturing has been carried out in Australia. Cushions Pty Ltd. has excess capacity, and the sales manager is approached by a potential new customer to fulfil a one-time-only special order for a large batch of pillows similar to what is offered to regular customers. The following per unit data apply for sales to regular customers: Direct material cost $10 Direct labour cost $3 Variable manufacturing overhead cost $2 Fixed manufacturing overhead cost $5 Total product cost $20 Markup $10 Targeted selling price $30 The new customer wants the pillows stuffed with imported Dutch goose feathers rather than the standard Australian duck feathers, so direct material costs will increase to $18 per unit. The average marketing cost of Cushions Pty Ltd. is $7 per unit
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