Question

QUESTION 5

1. 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 $10. This is made up of direct material $4, direct manufacturing labour $2, and variable MOH allocated $4 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.	$17
   	b.	$10
   	c.	$8
   	d.	$15
   	e.	$12

Answer 1

Solution:
	DIFFERENTIAL ANALYSIS
	CALCULATION OF MINIMUM ACCEPTABLE PRICE FOR
		Amount
	Incremental Cost incurred for the proposal
	Direct Material Per unit	$                            4
	Direct Manufacturing Labor	$                            2
	Variable MOH Allocated	$                            4
	Total Increamnetal Expenses	$                         10
Answer = Option B = $ 10
Notes:	1) Minimum acceptable price is always variable cost incurred for the job is taken
	2) Fixed Overhead is not a relevant cost for special job so this is not taken.