Question

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 59,000 units per month is as follows:
Per Unit
Direct materials $ 52.10
Direct labor $ 10.00
Variable manufacturing overhead $ 3.00
Fixed manufacturing overhead $ 21.10
Variable selling & administrative expense $ 5.60
Fixed selling & administrative expense $ 27.00


The normal selling price of the product is $124.10 per unit.

An order has been received from an overseas customer for 3,900 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $3.10 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.



Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $95.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be

Answer 1

Answer:

$108,420

Explanation:

For computing the financial advantage (disadvantage), first, we have to determine the contribution margin per unit which is shown below:

Contribution margin per unit

= Selling price per unit - variable cost per unit

where,

Selling price per units is $95.40

And, the variable cost per unit

= Direct material per unit + direct labor per unit + variable manufacturing overhead per unit + variable selling & administrative expense - variable selling and administrative expense

= $52.10 + $10 + $3 + $5.60 - $3.10

= $67.60

So, the contribution margin would be

= $95.40 - $67.60

= $27.80

And, the special units would be 3,900

So, the financial advantage would be

= 3,900 units × $27.80

= $108,420