Marginal Costing
The following question is for discussion in your groups.
A companys factory has the capacity to produce 13,000 units a year.
Its normal production is 10,000 units, the costs of which are
Direct materials	$30,000
Direct labour	20,000
Production overhead	40,000
	90,000
Administrative and other overheads	10,000
	100,000
The normal selling price is $12 per unit. A salesman says that a
foreign buyer will take 2,000 units a year if the price can be cut to
$8.50 per unit. Additional distribution costs would be $0.50 per unit
for these export items. Of the production overhead costs, 25% are
variable and 75% are fixed. All the administrative and other overhead
costs should be taken as fixed.
Required:
a) Should the company accept the order?
b) What effect would it have on the normal profits of the
business?