A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50).The order would require specialized materials costing $4.00 per unit.Direct labor and variable factory overhead would cost $2.15 per unit.Fixed factory overhead is $1.20 per unit.However, the company has excess capacity and acceptance of the order would not raise total fixed factory overhead.The warehouse, however, would have to add capacity costing $1,300.Which of the following is relevant to the special order?
A) $11.50 normal selling price
B) $1.20 fixed factory overhead per unit
C) $7.35 spent on donuts and coffee
D) $8.90 selling price per unit of special order
E) None of these.

Question

Quizplus · Accepted Answer

The selling price of the special order is relevant as it is compared against the cost of producing the units to determine whether the order is profitable. The normal selling price (A) is not relevant as it has no impact on the decision to accept the special order. The fixed factory overhead per unit (B) is not relevant as it remains constant and does not change regardless of whether the special order is accepted or not. The cost of donuts and coffee (C) is not relevant as it has no connection to the special order decision.

A Company Is Considering a Special Order for 1,000 Units