Each week Iron Company produces 800 units of their iron plate product that has a

Question

Each week Iron Company produces 800 units of their iron plate product that has a variable costs of $8 per unit. Total fixed costs for the month are $6,800. A special order is received for 200 units of the same iron plate product at a price of $9 per unit. Please consider the following below in order to accept or reject this special order. Please show all calculations.

A. difference between the offered price and the variable cost per unit, or $1.00

B. old fixed cost per unit of $8.50. C) new fixed cost per unit of $6.80

D. difference between the two fixed costs per unit, which is $1.70

Explanation / Answer

Contribution per unit = Selling price - Variable cost

= 9-8 i.e 1

Fixed csot will remain same hence there is no additional cost but the contribution is increasing by 200 hence the project should be accepted

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