Question

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Special Order Review company has the following information relating to their plastics factory Current Selling Price...

Special Order Review company has the following information relating to their plastics factory

Current Selling Price $10.00

Current Monthly Production 15,000 units

Total Direct Materials ( all Variable) $45,000.00

Total Direct Labor (all variable) $15,000.00

Total Overhead (50% variable) $50,000.00

Total Marketing Cost (75% variable) $30,000.00

A new customer has offered to buy 3000 units but will pay only $7.50. The special order will incur additional costs of $1.50 per unit but there will be no additional marketing costs paid.

REQUIRED: 1. Calculate the current variable cost per unit and fixed cost.

2. Calculate the gain or loss on the special order

Solutions

Expert Solution

Current Monthly Production is 15000 Units

Total Direct Material Cost is $45000

Variable Cost per Unit of DIrect Materials = $45,000/15000 U =$3 Per Unit

Total Direct Labour Cost is $ 15000

Variable Cost per Unit of DIrect Labour = $15,000/15000 U =$1 Per Unit

Total Overhead Cost is $50000

50% Variable Overhead Cost = $50,000 X 50% =$25000

50% Fixed Overhead Cost =$50000 X 50% =25000

Variable Cost per Unit of Overhead Cost = $25,000/15000 U =$1.66 Per Unit

Total Marketing cost is $ 30000

75% Variable Marketing Cost = $30,000 X 75% =$22500

25% Fixed Marketing Cost =$30,000 X 25% =7500

Variable Cost per Unit of Overhead Cost = $7,500/15000 U =$0.5 Per Unit

Current Variable Cost Per Unit

Direct Materials $3

Direct Labours $1

Overhead Cost $1.66

Marketing Cost $0.5

Total Variable Cost Per Unit $ 7.16

Current Fixed Costs

Overhead Cost $25,000

Marketing Cost $7,500

Total Fixed Cost $32,500

Current Variable Cost Per unit Excluding Marketing Cost =$7.16 - $0.50 = $6.66

Total Variable Cost on Special Order = Current Variable Cost Per unit Excluding Marketing Cost + Additional Cost

Total Variable Cost on Special Order = $6.66 + $1.50 = $8.16

Loss on Special Order = $8.16 - $7.16 = $1 Per Unit

Loss = $1 X 3000 Units = $3000

Loss on Special Order = $3000

Variable Cost Per Unit remains same irrespective of level of productions

Fixed cost amounts are unchaged irrespective of production level

Thanks

ekkarill92 answered 2 months ago

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