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

Exercise 33

Special Order Marshall Company recently approached Johnson Corporation regarding manufacturing a special order of 4,000 units of product CRB2B. Marshall would reimburse Johnson for all variable manufacturing costs plus 35 percent. The per-unit data follow:

Unit sales price	$28
Variable manufacturing costs	13
Variable marketing costs	5
Fixed manufacturing costs	4
Fixed marketing costs	2

Johnson would have a retooling cost of $12,000 for the special order. Johnson has no alternative use of capacity.

Required Should the special order be accepted?

Step 1 of 2

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. Breakeven is point of no profit i.e. where revenue is equal to total costs.