Rutro Corp produces a single product The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per month is as follows Direct material$74 00 Direct labor20 00 Variable manufacturing overhead6 00 Fixed manufacturing overhead21 00 Variable selling and administrative expense8 00 Fixed selling and administrative expense 19 00 Total$148 00 The normal selling price of the product is $173 00 per unit An order has been received from an overseas customer for 11,000 units to be delivered this month at a special discounted price This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs The variable selling and administrative expense would be $6 00 less per unit on this order than on normal sales Direct labor is a variable cost in this company Required Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $136 00 per unit By how much would this special order increase (decrease) the company's net operating income for the month Suppose the company is already operating at capacity when the special order is received from the overseas customer You bought the textbook for this course and actually opened it up and read some of the words in it Thus, you know that opportunity cost is the potential benefit given up when one opportunity is selected over another So, how much do you calculate the opportunity cost of each unit delivered to the overseas customer would be Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 11,000 units for regular customers What would be the minimum acceptable price per unit for the special order What are the advantage(s) to Rutro Corp of foregoing manufacture of the product for sales by Rutro and instead manufacturing for sales by other companies What are the dangers of implementing this strategy

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 28, 2024

Rutro Corp. produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of

Rutro Corp. produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per month is as follows:

Direct material$74.00

Direct labor20.00

Variable manufacturing overhead6.00

Fixed manufacturing overhead21.00

Variable selling and administrative expense8.00

Fixed selling and administrative expense19.00

Total$148.00

The normal selling price of the product is $173.00 per unit.

An order has been received from an overseas customer for 11,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $6.00 less per unit on this order than on normal sales. Direct labor is a variable cost in this company.

Required:

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $136.00 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?
Suppose the company is already operating at capacity when the special order is received from the overseas customer. You bought the textbook for this course and actually opened it up and read some of the words in it. Thus, you know that "opportunity cost" is the potential benefit given up when one opportunity is selected over another. So, how much do you calculate the opportunity cost ofeachunit delivered to the overseas customer would be?
Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 11,000 units for regular customers. What would be theminimumacceptable price per unit for the special order?

What are the advantage(s) to Rutro Corp. of foregoing manufacture of the product for sales by Rutro and instead manufacturing for sales by other companies?