Question

Bertans has received a special order for 1,500 units of its product at a special price of $19. The product normally sells for $33 and has the following manufacturing costs:

Per unit

Direct materials $ 8

Direct labor $4

Variable manufacturing overhead $3

Fixed manufacturing overhead $2

Unit cost $17

Assume that Bertans' production is at full capacity. If Bertans accepts the order, what effect will the order have on the company’s short-term profit?

Answer 1

Solution

If Bertans accepts the order, profits will be increased by $6000.

Working

Working for relevant cost for special order
	Per Unit	Total
Direct Material	$                           8.00	$ 12,000.00
Direct Labor	$                           4.00	$     6,000.00
Variable Manufacturing Overheads	$                           3.00	$     4,500.00
Total relevant Cost	$                        15.00	$ 22,500.00

Benefit of Accepting Special Order
Sale Proceeds from special order (1500*19)	$                28,500.00
Less:Total Relevant Cost	$                22,500.00
Net Benefit	$                  6,000.00