Module 17 Relevant Costs and Benefits for Decision Making Cambridge Business Publishers Factory overhead is applied on the basis of direct labor dollars. Budgeted factory overhead is $8,000,000 for the current year. Of this amount, $6,000,000 is fixed. Of the $15,800 of factory overhead assigned to the Pulse Cycles order, only $3,950 is driven by the special order; $11,850 is a fixed cost. Selling and administrative expenses are budgeted as follows: Fixed . .... . . .. $3,000,000 per year Variable ... $10 per unit manufactured and sold Required a. The president of Razor wants to know if he should allow Pulse Cycles to have the scooters for $45,000. Determine the effect on profits of accepting Pulse Cycles' offer. b. Briefly explain why certain costs should be omitted from the analysis in requirement (a). c. Assume Razor is operating at capacity and could sell the 500 scooters at its regular markup. 1. Determine the opportunity cost of accepting Pulse Cycles' offer. 2. Determine the effect on profits of accepting Pulse Cycles' offer. d. What other factors should Razor consider before deciding to accept the special order? P17-32 coupons for $20. The a limit of one coupon 2075depreciation. Although sorting ma- operating uipment for all to $20.000, ex- he new machines. might be a factor in making a final decision P17-31. Special Order LO1, 2 Razor USA produces a variety of electric scooters. Assume that Razor has just received an order from Ra a customer (Pulse Cycles) for 500 Power Core scooters. The following price, based on cost plus a 60% markup, has been developed for the order: Manufacturing costs Direct materials . . . $11,850 Direct labor . 8,500 Factory overhead 15,800 Total ........ . 36, 150 Markup (60%) . .... 21,690 Selling price . .. . $57,840 Pulse Cycles rejected this price and offered to purchase the 500 scooters at a price of $45,000. The fol- lowing additional information is available: . Razor has sufficient excess capacity to produce the scooters