Question 3

Sara Company is considering accepting a special order from a foreign firm for Sura Company, the main product it produces. This would be a one-time order, would not impact existing sales, and sufficient capacity exists to manufacture the goods. Existing cost information is as follows:

Item	Cost per unit
Direct materials	6.5
Direct labor	7.5
Variable manufacturing overhead	3.25
Fixed manufacturing overhead (allocated)	4.5
Variable marketing	2.25

The fixed manufacturing costs will remain unchanged whether or not the order is accepted. The foreign purchaser is willing to pay $22 for each unit and would like to purchase 5,000 units. Because the sales would not go through regular distribution channels, the variable marketing costs would not be incurred. However, a packing and shipping cost of $1.00 per unit would be incurred to get the units ready for oversees shipping.

Requirement

1- What is the relevant cost per unit that Sara should use when considering whether or not to accept the special order?

2- What is the potential profit or loss that Sara will make on the special order if it accepts it?