A company normally sells a product for $25 per unit.Variable per unit costs for this product are: $3 direct materials,$5 direct labor,and $2 variable overhead.The company is currently operating at 100% of capacity producing 30,000 units per year.Total fixed costs are $75,000 per year.The company should accept a special order for 1,000 units which would be sold for $13 per unit because the special order price exceeds variable costs.

Question

Quizplus · Accepted Answer

The special order price of $13 per unit does not cover the total variable costs of $10 per unit ($3 direct materials + $5 direct labor + $2 variable overhead), so accepting the order would result in a loss on each unit sold.

A Company Normally Sells a Product for $25 Per Unit