Question
Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of
Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 46,000 units per month is as follows:
Per Unit | ||
Direct materials | $ | 45.60 |
Direct labor | $ | 8.70 |
Variable manufacturing overhead | $ | 1.70 |
Fixed manufacturing overhead | $ | 18.50 |
Variable selling & administrative expense | $ | 3.00 |
Fixed selling & administrative expense | $ | 14.00 |
The normal selling price of the product is $98.10 per unit.
An order has been received from an overseas customer for 2,600 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.80 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $82.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:
-
($39,000)
-
$17,420
-
$65,520
-
($23,660)
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