The cost to produce one unit of the product is: Material &nb
The cost to produce one unit of the product is:
Material $ 12.00
Labor $ 9.00
Variable cost $ 6.00
Fixed expenses $ 18.00
Total fixed expenses: $ 1,440,000
The company’s normal capacity is 100,000 units. The figures given above are for 80,000 units.
The company has received a special offer for 20,000 units for a price of $ 36 per unit from a foreign customer.
Advice the manufacturer on whether the order should be accepted. (clear tables not photo)
Homework Answers
Company's Normal Capacity is 100000 unit
Company Make 80000 Unit and cost per unit is as follows
| Material | $12 | ||
| Labor | $9 | ||
| Variable cost | $6 | ||
| Fixed Expenses | $18 | ||
| Fixed Expenses in Amount | $ 1440000 |
However Manufacture has received a order from foreign customer is 20000 unit. Fixed expenses of manufacture to produce the product of Rs. 1440000. Manufacture will bear same amount of fixed expenses even they produced 100000 unit or 80000 unit. Hence we compare sale price of 20000 unit with variable cost of product only and it is beneficial to manufacture.
| Sale Price of product | $36 | ||
| Less: | |||
| Material | $12 | ||
| Labor | $9 | ||
| Variable cost | $6 | ||
| Contribution per unit | $9 | ||
| Contribution in amount | $180000 |
However we advised to manufacture accept the order.
The cost to produce one unit of the product is: Material  
The cost to produce one unit of the product is: Material $ 12.00 Labor $ 9.00 Variable cost $ 6.00 Fixed expenses $ 18.00 Total fixed expenses: $ 1,440,000 The company’s normal capacity is 100,000 units. The figures given above are for 80,000 units. The company has received a special offer for 20,000 units for a price of $ 36 per unit from a foreign customer. Advice the manufacturer on whether the order should be accepted.
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