Question

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 49,000 units per month is as follows:

	Per Unit
Direct materials	$	47.10
Direct labor	$	9.00
Variable manufacturing overhead	$	2.00
Fixed manufacturing overhead	$	19.10
Variable selling & administrative expense	$	3.60
Fixed selling & administrative expense	$	17.00

The normal selling price of the product is $104.10 per unit.

An order has been received from an overseas customer for 2,900 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.10 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $85.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Answer 1

Solution:

Computation of financial advantage (Disadvantage) on special order
Particulars	Amount
Revenue from special order	$247,660.00
Relevant costs:
Direct materials	$136,590.00
Direct labor	$26,100.00
Variable manufacturing overhead	$5,800.00
Variable selling and administrative expenses	$4,350.00
Financial advantage (disadvantage) on special order	$74,820.00