Question
Fitzgerald Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of
Fitzgerald Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 70,000 units per month is as follows:
Direct materials $26.60
Direct labor $4.30
Variable manufacturing overhead $1.90
Fixed manufacturing overhead $11.10
Variable selling and administrative expense $1.50
Fixed selling and administrative expense $9.10
The normal selling price of the product is $56.70 per unit. Direct labor is a variable cost in this company. The company has excess capacity buy only enough to accept one of the special orders below.
Special Order #1
An order has been received from an overseas customer for 2,000 units to be delivered this month at a special discounted price. This order would have no effect on the companys normal sales and would not change the total amount of the companys fixed costs. The variable selling and administrative expense would be $0.90 less per unit on this order than on normal sales. The customer has offered to pay $52.25 per unit.
Special Order #2
An order has been received from an overseas customer for 2,400 units to be delivered this month at a special discounted price. This order would have no effect on the companys normal sales but would increase the total amount of the companys fixed costs by $2,000. The variable selling and administrative expense remain at the normal $1.50 per unit. The customer has offered to pay $52.00 per unit.
Special Order #3
An order has been received from an overseas customer for 2,200 units to be delivered this month at a special discounted price. This order would have no effect on the companys normal sales but would increase the total amount of the companys fixed costs by $4,500. The variable selling and administrative expense would be $0.80 less per unit on this order than on normal sales. The customer has offered to pay $52.25 per unit.
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