Question

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Jason Ltd receives a one-time order that is not considered part of its normal ongoing business....

Jason Ltd receives a one-time order that is not considered part of its normal ongoing business. Jason Ltd makes a single product with a unit variable manufacturing cost of $8. This is made up of direct material $4, direct manufacturing labour $2, and variable MOH allocated $2 per unit. Variable marketing cost for the product is $2 per unit. Normal selling price is $25 per unit.

Annual capacity is 10,000 units, and actual annual fixed costs total $58,000. This is made up of $38,000 fixed manufacturing overhead and $20,000 fixed marketing cost.

Jason Ltd is currently producing and selling 7,000 units. A foreign distributor offers to purchase 3,000 units.

On financial considerations alone, what is the minimum price at which Jason Ltd. would be willing to accept the special order?

a.

$12
b.

$17
c.

$10
d.

$15
e.

$8

Solutions

Expert Solution

Correct answer-----------(c) $10

Working

Calculation of Additional Cost of Order
Per Unit
Direct material $                      4.00
Direct labor $                      2.00
Variable manufacturing overheads   $                      2.00
Variable marketing cost $                      2.00
Total Additional cost due to acceptance of order per unit $                    10.00

The additional cost of production incurred will be the minimum price .

ekkarill92 answered 2 years ago
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