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 44,000 units per month is as follows:

	Per Unit
Direct materials	$	44.60
Direct labor	$	8.50
Variable manufacturing overhead	$	1.50
Fixed manufacturing overhead	$	18.10
Variable selling & administrative expense	$	2.60
Fixed selling & administrative expense	$	12.00

The normal selling price of the product is $94.10 per unit.

An order has been received from an overseas customer for 2,400 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 $1.60 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 $80.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Answer 1

Computation of Financial advantage (disadvantage) :
Current Varuable cost per unit	$       57.20
Less : Savings in selling and administrative expense	$        -1.60
Variable cost of special order	$       55.60
Selling Price of Special order	$       80.40
Contribution margin for special order	$       24.80
Number of units	2400
Financial Advantage	$59,520.00
Working Note :
Direct material	$       44.60
Direct Labour	$         8.50
Variable Manfacturing overhead	$         1.50
Variable selling and administrative expense	$         2.60
Current Varuable cost per unit	$       57.20