Reference no: EM132501919

Rexall Industries produces latches for cabinet doors. They typically sell their latches to cabinet manufacturers who then use them in their cabinet construction. The cost of a latch is given below:

Direct materials                  $1.50

Direct labor                        $0.60

Variable overhead                $1.20

Fixed overhead                 $1.00

Each unit sells for $8.50.

• Currently, Rexall is operating at 480,000 units and has capacity to produce 500,000 units.
• Rexall has received a special order for 40,000 units of an upgraded latch from a home improvement store. The special order would require materials of $2.50 per unit (direct labor costs and variable overhead costs would be the same per unit; fixed overhead would not be affected). Clearly, 20,000 units of regular sales would be lost if the special order is accepted.

Required:

Question (1) Compute the opportunity cost of accepting this order.

Question (2) Compute the minimum acceptable price for this order.

• Opportunity cost of accepting the order
• Minimum acceptable price for the order(total for the entire 40,000 units)