Question

Glow Sticks Corporation manufactures and sells glow-in-the-dark nedlaces for 510 each. The company has the capachy to produce 25.000 necklaces in a year, but is currently producing and selling 20,000 necklaces per yea The company currently is incuring the following costs at its current production level of 20.000 necklaces Variable manufacturing costs Fored marlacturing costs 560.000 Variable selling and administrative costs 30.000 Fixed selling and administrative costs $75.000 An amusement park is interested in purchasing the exces capacity of 5,000 necklaces it can receive a special price. This special order would not affect Glow Stics Corporations relates constructure Glow Sects 350.00 Corporation's profits would increase from this special order the special order price per necklace is greater than A $7.50 OB. 56.75 OC. $5.00 OD 5300

Answer 1

Solution:
	CALCULATION OF THE PRICE PER UNIT FOR SPECIAL ORDER
		Amount in $
	Relevant Cost
	Variable Manufacturing Cost($ 60,000 / 20,000)	$                          3.00
	Variable Selling and administrative Cost ($ 75,000 / 20,000)	$                          3.75
	Total Relevant Cost	$                          6.75
	It means if the Special offer price is greater than $ 6.75 Per unit than Special order
	will give the incremental profit.
Answer = Option B = $ 6.75
Note:	1) Fixed manufacruing cost is fixed in nature so addittional cost is incurred for this.
	2) Fixed Selling and adminisrative is also fixed in nature will not affect the relevant Cost