Question

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?

Answer 1

Analysis of special order

Sales revenue (15,000 x 14)	210,000
Costs:
Direct material (15,000 x 5.10)	- 76,500
Direct labor (15,000 x 3.80)	- 57,000
Variable manufacturing overhead (15,000 x 1)	- 15,000
Variable selling and administrative expenses (15,000 x 1.5)	- 22,500
Net income	$39,000

Financial advantage of accepting the special order = $39,000

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