Question

Well Balanced Company makes silver necklace at its Easy City facility. The selling price per unit is $80. It has the capacity to make 5,000 pieces without increasing fixed costs.

               Current production is 4,000 units.

                                                                    Cost per Unit

                    Direct material $20                   

                    Direct labor 15

                    Factory overhead -Variable             8

                    Factory overhead - Fixed      7                                       

                                  Total Cost   $50

              A business from Florida wants to buy 1,000 necklaces at $49

              instead of $80.

              Well Balanced will have to spend $1 additional for putting the logo on each unit of the new order. It will also need to spend  $500 for a special packing only for this product.

(1) Prepare per unit and total costs statement for this order.

(2) At the bottom, show the price per unit and net profit from this order.

             (3) Should the company accept this order? Give your reasons (2 lines).       

Answer 1

			Per Unit	Total
		Sales Revenue	49.00	49,000
		Costs to be Incurred:
		Direct Material	20.00	20,000
		Direct Labor	15.00	15,000
		Factory Overhead-Variable	8.00	8,000
		Additional Logo Cost	1.00	1,000
		Special Packing Cost	0.50	500
		Total Cost	44.50	44,500
		Net Income	4.50	4,500
	Note:	Since the Company has Idle Capacity of 1000 Units, No Additional Fixed Cost will be incurred for the order
		Yes Company should accept the Order, Since it is earning 4500 on its idle capacity