Berryhill Automotive Company manufactures an engine design for motorcycles and m

Question

Berryhill Automotive Company manufactures an engine design for motorcycles and markets the product using its own brand. Although Berryhill has the capacity to produce 50,000 engines annually, it currently produces and sell only 30,000 units per year. The engine normally sells for $450 per unit, with no quality discounts. The unit-level cost to produce the engine are $160 for direct materials, $150 for direct labor, and $30 for indirect manufacturing cost. Berryhill expects total annual product and facility level cost to be $540,000 and $750,000 respectively. Assume Berryhill receives a special order from a new customer seeking to buy 1,000 engines for $320 each.

Should Berryhill accept or reject the special order? Support you answer with appropriate computations.

Explanation / Answer

Variable cost=$160+$150+$30=$340

special order price=$320

Special order price is less than the variable cost which is to be prodused for that engine

so better to reject the order

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