Question

In: Accounting

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of...

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:

Solutions

Expert Solution

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

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