Jehan Corporation manufactures chairs which are it sells a price of $100 per chair. xxx

The following standard costs are associated with the production of one chair:  

Direct materials $ 15.00

Direct labor 10.00

Variable overhead 8.00

Fixed overhead 12.00

Variable selling 6.00

Fixed selling 2.00

Variable administrative 4.00

Fixed administrative 3.00

$ 60.00

At a time when extra capacity exists, a special order is received for 100 chairs at a total price of $5,000. If the order is accepted, variable selling costs will be reduced by 80%, variable administrative expenses will be cut by 50% while direct materials will be lowered by $5 per unit.  

4. Is there an opportunity cost? Yes or no and WHY?

5. Should the order be accepted? Yes or no and by how much (how much better would the company be if they followed your advice.

6. If the company had 1,000 units on hand in finished goods, what would be the standard cost of inventory under absorption costing as shown on the balance sheet? Variable

7. NOW ASSUME that the company is currently operating AT CAPACITY. What would be the “real cost” as used in this course (and book) of taking the special order?

8. Should the company accept the order, YES OR NO and BY HOW MUCH?

9. Under Variable Costing, the unit cost of inventory is:

Absorption

$_____________ per unit