Given the following data for Tan Company Sales (in units) 60,000 Selling price per unit 28...

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Question

Given the following data for Tan Company Sales (in units) 60,000 Selling price per unit 28...

Given the following data for Tan Company

Sales (in units) 60,000

Selling price per unit 28

Manufacturing costs per unit:

Materials 5

Direct labor 4

Overhead

Variable 4

Fixed 10

Total 23

Gross margin 5

Selling and admin. Expenses per unit 2

Operating income 3

A Company in a foregin market offer to buy and the offer specifies the following data

Units to be sold 10,000

Price per unit 13.10

What is the logical decision about this special offer

Do not reject the special offer
Reject the special offer
Indifferent to reaction, not the special offer
Always accept the offer

business accounting

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Answer 1

Answer #1

Variable cost per unit = direct materials + direct labor + variable overhead + selling and administrative expense

= 5+4+4+2

= $15

Price per unit in Foregin market = $13.10

Since the price per unit in the special offer is less than variable cost per unit, hence special order should be rejected.

Fixed overhead is not relevant here since fixed overhead will not increase due to the acceptance of special order.

Second option is correct option.

Kindly comment if you need further assistance. Thanks‼!

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Answer 2

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