The ROAR company manufactures a single product that sells for $17.00 each. The cost of each unit produced at a monthly production level of 10,000 units is:

Direct materials	$2.75
Direct labour	$3.25
Variable manufacturing overhead	$.75
Fixed manufacturing overhead cost	$4.50
Fixed administrative expenses	$2.25

 

The total monthly production capacity is 12,000 units. A special order for 2,000 units was received at a purchase price of $14.00 per unit. Regular sales will not be affected by this order.

 

1. How much will the monthly profit increase or decrease if ROAR accepts the special order? Please note that accepting the order will not affect the fixed costs.
2. Suppose the company has 600 units of an earlier model of this item that went unsold last year. To dispose of the units, the company has to sell them at a reduced price through normal sales channels. Identifies the unit cost that is relevant to determining the minimum price at which these units can be disposed of. Explain why you consider this to be the relevant cost.

Produccin Materiales directos. Mano de obra directa Costo indirecto variable de fabricacin Costo indirecto fijo de fabricacin Gastos Administrativos fijo Costos Totales Fabricadas (12,000*2.75) $33,000 (12,000*3.25) $39,000 (12,000 *.75) $9,000 SO SO $81,000 Compradas SO $0 SO (10,000*4.50) $45,000 (10,000*2.25) $22,500 $67,500 Costo Total Ganancia/ (perdida) $33,000 $39,000 $9,000 ($45,000) ($22,500) $13,500