Question

Talboe Company makes one product. Talboe's costs of 20,000 units annually are as follows:

Direct materials ...........................................................................................$ 40,000

Direct labor ...................................................................................................60,000

Variable manufacturing overhead.................................................................30,000

Fixed manufacturing overhead ....................................................................70,000

Variable selling & administrative expense................60,000

Fixed selling & administrative expense....................80,000

Total ..............................................................................................................$340,000

The normal selling price is $35 per unit.

An outside order has been received for 3000 units at a discounted price of $20 per unit. This

order will have no effect on the company’s fixed costs. The variable selling and administrative

expense would be $1 less per unit on this order than on normal sales.

Required:

1) The company currently has normal sales of 16,000 and there is ample idle capacity to

meet the production needs for the special order. Should this company accept this special

order?

2) Refer to the original data in the question. Now the company currently has normal sales of

19000 units. Should the company accept the order?

3) Refer to question 2), what is the minimum acceptable price for this order?

Answer 1

Hi

Let me know in case you face any issue. Althought the format of answer is not available with question. But i have used the best format. For part 3, Minimum acceptable price has been mentioned in both total and unit level.