Juliani Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 50,000 units per month is as follows:
$\begin{array}{lr}
\text { Direct materials } & \$ 32.50 \
\text { Direct labor } & \$ 7.20 \
\text { Variable manufacturing overhead } & \$ 1.30 \
\text { Fixed manufacturing overhead } & \$ 20.90 \
\text { Variable selling \& administrative expense } & \$ 1.90 \
\text { Fixed selling \& administrative expense } & \$ 7.30
\end{array}$ The normal selling price of the product is $75.00 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.30 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Required:
a. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $65.60 per unit. What is the financial advantage (disadvantage) for the company next month if it accepts the special order?
b. Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?
c. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,000 units for regular customers. What would be the minimum acceptable price per unit for the special order?

Question

Juliani Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 50,000 units per month is as follows:
 $\begin{array}{lr}
\text { Direct materials } & \$ 32.50 \
\text { Direct labor } & \$ 7.20 \
\text { Variable manufacturing overhead } & \$ 1.30 \
\text { Fixed manufacturing overhead } & \$ 20.90 \
\text { Variable selling \& administrative expense } & \$ 1.90 \
\text { Fixed selling \& administrative expense } & \$ 7.30
\end{array}$ The normal selling price of the product is $75.00 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.30 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Required:
a. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $65.60 per unit. What is the financial advantage (disadvantage) for the company next month if it accepts the special order?
b. Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?
c. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,000 units for regular customers. What would be the minimum acceptable price per unit for the special order?

Quizplus · Accepted Answer

The Answer of Juliani Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 50,000 units per month is as follows:
 $\begin{array}{lr}
\text { Direct materials } & \$ 32.50 \
\text { Direct labor } & \$ 7.20 \
\text { Variable manufacturing overhead } & \$ 1.30 \
\text { Fixed manufacturing overhead } & \$ 20.90 \
\text { Variable selling \& administrative expense } & \$ 1.90 \
\text { Fixed selling \& administrative expense } & \$ 7.30
\end{array}$ The normal selling price of the product is $75.00 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.30 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Required:
a. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $65.60 per unit. What is the financial advantage (disadvantage) for the company next month if it accepts the special order?
b. Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?
c. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 1,000 units for regular customers. What would be the minimum acceptable price per unit for the special order?

Juliani Company Produces a Single Product The Normal Selling Price of the Product Is $75