/ 016c. Special order decision (10pts) Prudent Products Corporation manufactures
ID: 2516913 • Letter: #
Question
/ 016c. Special order decision (10pts) Prudent Products Corporation manufactures and sells 1,000 motorcycle engines each month. A primary component in each motor is an oil pump used to keep the motor lubricated. Prudent Products has the monthly capacity to produce 1,500 oil pumps. The variable unit costs associated with manufacturing each pump are shown below: Direct matenials Direct labor 38 28 48 Vanable manufacturing overhead Fixed manufacturing overhead per month (for up to 1,500 units of production) averages $46,000. Volk's Autos, Inc., has offered to purchase 250 oil pumps from Prudent Products per month to be used in its own motorcycles. (a) Prudent Product's average unit cost of manufacturing each oil pump if it rejects Volk's Autos' order is S (b) The incremental unit cost of producing each additional oil pump is $ (c) If this special order is accepted, the price per unit that Prudent Products could charge Volk's Autos in order to earn a $20,000 monthly pretax profit on the sale is S per unit. per unit. per unit. Show work (label your answers):Explanation / Answer
Answer B.
Incremental cost is made up of only variable costs needed to produce additional units.
Fixed costs have already been applied and calculated to the regular production run, so those costs would get applied to additional units beyond the regular production run.
Hence the incremental cost is $38 + $28 + $48 = $114
Answer A. Variable Cost (1500 Units) Per Unit ($) Total (Units x Per Unit) Direct Material $38 $57,000 Direct Labour $28 $42,000 Variab;e Manufacturing Overhead $48 $72,000 Total Variable Cost $171,000 Fixed Manufacturing Overhead $46,000 Total Cost (1500 Units) $217,000 Average Unit Cost = Total Cost/No. of units $144.67Related Questions
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