Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 46

Special Order: ABC Costing (Continuation of Problem 11-44) Assume the same information as for Problem 11-44, except that the $40 fixed manufacturing overhead consists of $15 per unit batch related costs and $25 per unit facilities level fixed costs. Also, assume that each new batch causes increased costs of $15,000 per batch; the remainder of the fixed costs do not vary with the number of units produced or the number of batches.

Required

1. Calculate the relevant unit and total cost of the special order, including the new information about batch related costs.

---

2. If accepted, how would the special order affect Duvernoy’s operating income?

---

3. Suppose that Chen notifies Duvernoy it must reduce its order to 1,000 units because of changes in orders it has received. How would this change affect your answer in Parts 1 and 2?

Step 1 of 4

Fixed costs are costs which does not changes with change in level of production. Variable costs are costs which does changes with change in level of production.