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Q1) Rubye Company manufactures a single product, a jar of face cream. Cost of manufacturing and selling a single jar of this product at company's normal activity level of 80,000 jars per month is as follows:

Direct materials............... $37.50
Direct labor.................... $6.00
Variable manufacturing overhead.................... $1.00
Fixed manufacturing overhead...................... $11.50
Variable selling & administrative expense........... $1.80
Fixed selling & administrative expense................. $8.00

Normal selling price of product is $71.10 per unit.

An order has been got from overseas customer for 1,000 jars to be delivered this month at special discounted price. This order would have no effect on company's normal sales and would not change total amount of the company's fixed costs. Variable selling and administrative expense would be $1.50 less per jar on this order than on normal sales.

A. Assume there is ample idle capacity to make the jars of cream needed by overseas customer and special discounted price on special order is $63.70 per jar. By how much would this special order increase (decrease) company's net operating income for the month?    

B. Assume company is already operating at capacity when special order is got from overseas customer. What would be opportunity cost of each unit delivered to overseas customer?            

C. Assume there is not sufficient idle capacity to make all of the units for overseas customer and accepting special order would need cutting back on production of 400 units for regular customers. Minimum acceptable price per unit for the special order is closest to:

Give suitable quantitative accounting analysis to support your answers to three problems A through C.

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  • Category:- Accounting Basics
  • Reference No.:- M919117

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