Elfalan Corporation produces a single product. The cost of producing and selling

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 46,000 units per month is as follows:

The normal selling price of the product is $98.10 per unit.

An order has been received from an overseas customer for 2,600 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 $1.80 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 $82.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

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Multiple Choice

$17,420

($39,000)

$65,520

($23,660)

Per Unit Direct materials $ 45.60 Direct labor $ 8.70 Variable manufacturing overhead $ 1.70 Fixed manufacturing overhead $ 18.50 Variable selling & administrative expense $ 3.00 Fixed selling & administrative expense $ 14.00

Explanation / Answer

Relevant cost=

Direct material+direct labor+variable manufacturing overhead+variable selling and administrative cost

$45.60+$8.70+$1.70+$1.2

$57.2

Relevant revenue=$82/40

In 2,600units

Relevant cost=2600*$57.2=$1,48,720

Relevant revenue=2600*$82.40=$2,14,240

SO ACCEPTED

IF WE ACCEPTED THIS ORDER THE REVENUES WILL INCREASED BY

$2,14,240-$1,48,720

$65,520

Therefore answer is option (c) $65,520

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