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 50,000 units per month is as follows:
Per Unit | |
---|---|
Direct materials | $ 47.60 |
Direct labor | $ 9.10 |
Variable manufacturing overhead | $ 2.10 |
Fixed manufacturing overhead | $ 19.30 |
Variable selling & administrative expense | $ 3.80 |
Fixed selling & administrative expense | $ 18.00 |
The normal selling price of the product is $106.10 per unit.
An order has been received from an overseas customer for 3,000 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 $2.20 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 $86.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:
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