Question 2 Special Order: Starcourt, Inc. produces a single product. The cost of producing and selling...

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Question 2 Special Order: Starcourt, Inc. produces a single product. The cost of producing and selling...

Question 2 Special Order: Starcourt, Inc. produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 60,000 units per year is:


Direct materials	$	5.10
Direct labor	$	3.80
Variable manufacturing overhead	$	1.00
Fixed manufacturing overhead	$	4.20
Variable selling and administrative expense	$	1.50
Fixed selling and administrative expense	$	2.40

The normal selling price is $21 per unit. The company’s capacity is 75,000 units per year. An order has been received from a mail-order house for 15,000 units at a special price of $14.00 per unit. This order would not affect regular sales or the company’s total fixed costs.

What is the financial advantage (disadvantage) of accepting the special order?

business accounting

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Answer 1

Answer #1

Only variable cost should be considered for calculating income or loss from special order.

Fixed cost should not be taken into account for special order. Fixed cost will be realised from normal sale of 60,000 units.

Income from special order = 15,000 X ($14 - $5.10 - $3.80 - $1.00 - $1.50) = $39,000

Financial advantage of accepting the offer is $39,000

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Answer 2

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