Question

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 58,000 units per month is as follows:

	Per Unit
Direct materials	$	51.60
Direct labor	$	9.90
Variable manufacturing overhead	$	2.90
Fixed manufacturing overhead	$	20.90
Variable selling & administrative expense	$	5.40
Fixed selling & administrative expense	$	26.00

The normal selling price of the product is $122.10 per unit.

An order has been received from an overseas customer for 3,800 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $3.00 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $94.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Garrison 16e Rechecks 2017-12-15

Multiple Choice

• $25,460

• ($92,000)

• $104,880

• ($84,740)

Answer 1

Correct answer--------------$104,880

.

Financial Advantage

$ 104,880

Working

financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (3800 x $94.4)	$ 358,720
Less: Total Additional cost due to acceptance of offer	$ 253,840
Financial Advantage	$ 104,880

.

Calculation of Additional Cost of Order
	Per Unit	Total
Direct material	$                    51.60	$ 196,080
Direct labor	$                      9.90	$ 37,620
Variable manufacturing overheads	$                      2.90	$ 11,020
Variable selling and administrative expenses	$                      2.40	$ 9,120
Total Additional cost due to acceptance of order	$                    66.80	$ 253,840