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 45,000 units per month is as follows:

	Per Unit
Direct materials	$	45.10
Direct labor	$	8.60
Variable manufacturing overhead	$	1.60
Fixed manufacturing overhead	$	18.30
Variable selling & administrative expense	$	2.80
Fixed selling & administrative expense	$	13.00

The normal selling price of the product is $96.10 per unit.

An order has been received from an overseas customer for 2,500 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 $1.70 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 $81.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be

Multiple Choice

• ($35,000)

• $16,750

• $62,500

• ($20,000)

Answer 1

Feel free to ask any doubt, if you have.