Question

Sireli Company makes and sells a product that regularly sell for $38.95 each.

The following information is available for the current year:

Annual maximum capacity in units	6,500
Current annual production in units	6,200
Budgeted absorption cost per unit:
Direct materials	$9.95
Direct labor	$2.65
Manufacturing overhead (70% variable)	$3.40

A new customer approached the company with a one-time all-or-nothing order for 800 units. The special-order units are identical to the regular ones, with one exception: the customer would like their business logo engraved on each unit. It will cost $2.5 to engrave the logo.

Q. The minimum total sales revenue from the special order that would be acceptable to the company is:

A. $   

Answer 1

Minimum total sales revenue = $25,969

Working

The minimum sales revenue will be equal to cost incurred in the special order.

Calculation of Additional Cost of Order
	Per Unit	Total
Direct material	$                      9.95	$ 7,960
Direct labor	$                      2.65	$ 2,120
Variable manufacturing overheads	$                      2.38	$ 1,904
Additional cost for LOGO	$                      2.50	$ 2,000
Loss of contribution on 500 Units		$ 11,985.00
Total Additional cost due to acceptance of order	$                    17.48	$ 25,969

Units in companies capacity are only 6500 and 6200 are already sold in regular market hence company can only produce 300 units and rest 500 units will be taken from regular market to fulfill order.