What the impact on the company overall profit

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Reference no: EM132693763

ABC Co. produces a single product. The cost of producing and selling one unit at the maximum capacity of 10,000 units per month is as follows:

Direct Materials $50

Direct Labour $18

Total Manufacturing Overhead $70

Variable Selling Expense $17

Fixed Selling Expense $25

The normal selling price is $150 per unit. Fixed manufacturing cost are $350,000 per month.
Maximum capacity is 10,000 units per month and ABC Co. is currently producing at 8,000 units per month.
A special order for 3,000 units paying $125 for each unit was received. It must be accepted or rejected in its entirety.
The special order will require the same variable manufacturing costs as the regular product plus $7 extra materials.
There will be no selling expense on the special order.

Required:

Question a) Based on financial consideration alone, should the special order be accepted or rejected?

Question b) If the order is accepted, what the impact on the company's overall profit?

Question c) What is the minimum price per unit that ABC could accept for the special order if capacity is not an issue?

Reference no: EM132693763

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