question archive Juliani Company produces a single product
Juliani Company produces a single product
Subject:AccountingPrice:3.87 Bought7
Juliani Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 50,000 units per month is as follows
|
Direct materials |
$ |
30.50 |
|
Direct labor |
$ |
7.20 |
|
Variable manufacturing overhead |
$ |
1.30 |
|
Fixed manufacturing overhead |
$ |
30.90 |
|
Variable selling & administrative expense |
$ |
1.90 |
|
Fixed selling & administrative expense |
$ |
9.30 |
The normal selling price of the product is $75.00 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $0.60 less per unit on this order than on normal sales.
*Direct labor is a variable cost in this company.
Required:
- 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 $65.60 per unit. What is the financial advantage (disadvantage) for the company if it accepts the special order?
- Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?
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Answer:
a) calculation of financial advantage (disadvantage) of accepting special order:
| Particulars | Amount |
| Selling price | $65.60 |
| Less: variable cost | |
| Direct material | ($30.50) |
| Direct labour | ($7.20) |
| Variable manufacturing overhead | ($1.30) |
| Variable selling and administrative expenses ($1.90 - $0.6) | ($1.30) |
| Contribution margin | $25.3 |
| Special order units | 3,000 units |
| Increase in ñet income ($25.3×3,000) | $75,900 |
| Financial advantage of accepting special order | $75,900 |
Note: it had idle capacity to produce special order units, so only variable cost will change, fixed cost won't be considered.
b) calculation of opportunity cost of each unit:
| Particulars | Amount |
| Normal selling price | $75 |
| Less: variable cost | |
| Direct material | ($30.50) |
| Direct labour | ($7.20) |
| Variable manufacturing overhead | ($1.30) |
| Variable selling and administrative expenses | ($1.90) |
| Contribution margin | $34.10 |
| Less: contribution margin earned from special order | ($25.3) |
| Contribution margin lost due to special order | $8.8 |
opportunity cost for each unit delivered to special order is $8.8 per unit.
