XYZ Company produces lawn furniture. The cost per lawn chair is computed as follows:
Direct Labor $2.25
Plant overhead $1.15
Administrative and selling expense $0.80
Total $6.50 per unit
These costs are allocated to each unit of output bases on projected annual production of 500,000 chairs.
Company added $0.65 mark-up to price to arrive at selling price of $7.15 per unit
Company XY needs to purchase 30,000 chairs at $5.50 each.
1) Compute the marginal cost per chair to XYZ of accepting the chair order from XY?
2) prepare down the assumptions that were made in computing the marginal cost?