A company is considering a special order for 2,000 units to be priced at $18.90 (the normal price would be $21.50).The order would require specialized materials costing $4.00 per unit.Direct labour and variable factory overhead would cost $2.15 per unit.Fixed factory overhead is $2.20 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 $2,600.Which of the following is relevant to the special order?
A)$2.20 fixed factory overhead per unit
B)$2.60 per unit of revenue
C)$18.90 selling price per unit of special order
D)$21.50 normal selling price

Question

Quizplus · Accepted Answer

Fixed costs that do not change with the order (like the $2.20 fixed factory overhead per unit) are not relevant. The $2.60 per unit of revenue is not a cost or revenue figure provided in the scenario. The normal selling price of $21.50 is not relevant to the decision about the special order. The $18.90 selling price per unit of the special order is relevant because it directly impacts the revenue from the special order.

A Company Is Considering a Special Order for 2,000 Units