Question

Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 25,500 units of one of its most popular products. Grant currently manufactures 51,000 units of this product in its Loveland, Ohio, operating at 50% capacity. There will be no marketing costs on the special order. The sales manager of Grant wants to set the bid at $11 because she is sure that Grant will get the business at that price. Others on the executive committee of the firm object, saying that Grant would lose money on the special order at that price. 51,000 76,500 Units Manufacturing costs: Direct materials Direct labor Factory overhead Total manufacturing costs Unit cost $153,000 204,000 306,000 $663,000 $ 13 $229,500 306,000 382,500 $918,000 $ 12 Required 2. What is the relevant cost per unit? What do you think the minimum short-term bid price per unit should be? What would be the impact on short-term operating income if the order is accepted at the price recommended by the sales manager? 4. What would the total opportunity cost be if by accepting the special order the company lost sales of 6,900 units to its regular customers? Assume the preceding facts plus a normal selling price of $24 per unit Complete this question by entering your answers in the tabs below. Required 2 Required 4 What is the relevant cost per unit? What do you think the minimum short-term bid price per unit should be? What would be the impact on short-term operating income if the order is accepted at the price recommended by the sales manager? Relevant cost per unit Bid price per unit should be any price above Change in short-term operating income

Answer 1

Part-1
Computation of Relevant cost per Unit
Particluar	Amount
Direct Material	$153,000.00
Direct Labour	$204,000.00
Variable Overhead	$306,000.00
Total Cost	$663,000.00
No. of Unit	51000
Relevant cost per Unit	$13.00
Bid Price per should be more than $13

Impact on Short term Operating Income/(Loss) (25500X( $11- 13)=-$51000. There is a loss of $51000

Part-4
Computation of Opportunit cost
Regular selling Price	$24.00
Less: Relevant cost per Unit	$13.00
Income per Unit	$11.00
No. of Unit Lost by accepting order	6900
Loss of operating Income ( 6900*11)	$75,900.00