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A production costs summary for Comapny A is as follows:
Unit-level direct material $ 5.00/unit
Unit-level direct labor 2.00/unit
Unit-level overhead 6.00/unit
Product-level overhead 4.00/unit
Total cost per unit $17.00

Fixed facility-level selling costs are $600,000 per year and unit-level selling costs are $2. Unit-level selling costs comprise mainly of shipping and packaging costs. Production capacity is 400,000 units, but Davidson only expects to make (and sell) 250,000 units next year. Normal selling price of product is $30 per unit. Merchant has made offer to buy 50,000 units at $24 each.

Relevant incremental cost per unit related with special order is how much?
If Company A accepts special offer, profitability will either increase or decrease and how much?
Is any of these statements true:
Facility-level selling costs are relevant to the special offer decision.
Product-level production costs are relevant to the special offer decision.
Unit-level selling costs are not suitable to special offer decision.

Project Management, Management Studies

  • Category:- Project Management
  • Reference No.:- M933132

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