The following information relates to a product produced by Ashland Company: Dire

Question

The following information relates to a product produced by Ashland Company:

  Direct materials

$

10.10  

  Direct labor

7.10  

  Variable overhead

6.10  

  Fixed overhead

8.10  

  Unit cost

$

31.40  

Fixed selling costs are $1,100,000 per year. Variable selling costs of $4.10 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Ashland expects to produce only 400,000 units next year. The product normally sells for $41.00 each. A customer has offered to buy 60,100 units for $30.30 each. The customer will pay the transportation charge on the units purchased. If Ashland accepts the special order, the effect on income would be a:

  Direct materials

$

10.10  

  Direct labor

7.10  

  Variable overhead

6.10  

  Fixed overhead

8.10  

  Unit cost

$

31.40  

Explanation / Answer

Sales Value @60100 units @$30.30

$1821030

Manufacturing Cost of Special Order

Direct Material

$10.1

Direct Labor

$7.1

Variable Overhead

$6.1

Unit cost of Manufacturing

$23.30

Cost of Manufacturing of Special order of 60100 Units(60100*$23.3)

$1400330

Profit of Special Order

$420700

The fixed cost per unit is not considered assuming that the total fixed cost has already charged to 400000 units of normal production.

Sales Value @60100 units @$30.30

$1821030

Manufacturing Cost of Special Order

Direct Material

$10.1

Direct Labor

$7.1

Variable Overhead

$6.1

Unit cost of Manufacturing

$23.30

Cost of Manufacturing of Special order of 60100 Units(60100*$23.3)

$1400330

Profit of Special Order

$420700

The fixed cost per unit is not considered assuming that the total fixed cost has already charged to 400000 units of normal production.

Sales Value @60100 units @$30.30

$1821030

Manufacturing Cost of Special Order

Direct Material

$10.1

Direct Labor

$7.1

Variable Overhead

$6.1

Unit cost of Manufacturing

$23.30

Cost of Manufacturing of Special order of 60100 Units(60100*$23.3)

$1400330

Profit of Special Order

$420700

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