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(Solved): Assume a company is considering whether to accept or reject a special order opportunity to sell a c ...
Assume a company is considering whether to accept or reject a special order opportunity to sell a customer 300 units of a slightly customized version of one of its products for $38.75. The normal selling price of this product is $48 per unit It can fulfill the order using existing manufacturing capacity. The company's accounting system estimates the following unit product cost for this product: The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. Assuming that this decision will have no effect on sales to other customers, what is the financial dvantage (disadvantage) of accepting the special order?
To determine the financial advantage or disadvantage of accepting the special order, we need to compare the incremental revenue and incremental costs associated with the order.Incremental Revenue:The special order involves selling 300 units at a price of $38.75 per unit. Therefore, the incremental revenue can be calculated as:
Incremental Revenue = Number of units in the special order x Selling price per unit
Incremental Revenue = 300 units x $38.75 per unit
Incremental Revenue = $11,625Incremental Costs:The incremental costs include the direct materials, direct labor, and variable portion of manufacturing overhead.