Page 1 of 3 RELEVANT COSTS FOR DECISION MAKING ......... ZOOM + K FLORIDA COMPANY FLORIDA Company normally sells product Z for $30 per unit. Unit product costs are as follows: Direct materials Direct labor Manufacturing overhead Total $4 5 10 $19 In addition, normal shipping costs amount to $.50 per unit. A special order to purchase 20,000 units was recently received at a price of $27 per unit. FLORIDA currently has capacity of 120,000 units and is currently producing 90,000, therefore, there is enough capacity to fill the order and filling this order would not disrupt current operations. FLORIDA Company would incur an additional $2.50 per unit for shipping costs. Half of the manufacturing overhead costs are fixed and would be incurred no matter how many units are produced. Required: 1. What are the total incremental revenues (the benefits) associated with the special order? --------- 2. What are the total incremental costs (the costs) associated with the special order? 3. What is the incremental income (loss) (the net cost or benefit) associated with the special order? 4. In negotiating a price, the minimum acceptable selling price would be? Page < 3 of ......... 5. Assume that the incremental costs of producing and selling the new units total $17 per unit, and that FLORIDA is now operating at capacity, and accepting this order will displace other normal work. What is the total incremental income (or loss) associated with accepting the order? ZOOM + 6. Given the capacity situation, what is the minimum price (per unit) FLORIDA would have to charge in order to be able to accept the special order? K --------- 7. Assume that FLORIDA has 500 units of Product Z left in their warehouse that must be sold immediately at reduced prices, otherwise, the inventory will become worthless and will have to be thrown away. What is the minimum price that FLORIDA must charge for these units?