CompuTronics, a manufacturer of computer peripherals, has excess capacity. The c

Question

CompuTronics, a manufacturer of computer peripherals, has excess capacity. The company's Utah plant has the following per-unit cost structure for item no. 89:

  
The traceable fixed administrative cost was incurred at the Utah plant; in contrast, the allocated administrative cost represents a "fair share" of CompuTronics' corporate overhead. Utah has been presented with a special order of 5,400 units of item no. 89 on which no selling cost will be incurred. The proper relevant cost in deciding whether to accept this special order would be:

$70.

$95.

$98.

$115.

None of these.

  Variable manufacturing $ 70   Fixed manufacturing 20   Variable selling 7   Fixed selling 10   Traceable fixed administrative 5   Allocated administrative 3

Explanation / Answer

Relavent costs = Costs incurred for the special order.

Fixed costs are irrelavent in decision making.

Fixed manufacturing costs are irrelavent as they are fixed, Variable and fixed selling costs are irrelavent as no selling costs will be incurred on the special order. Traceable fixed administrative costs are irrelavent as they are fixed costs and Allocated administrative costs are also irrelavent as they are corporate overhead.

Relavent costs = Variable manufacturing = 70

The answer is 70.

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