Assume a company manufacturing many products, one of which normally sells for $48 per unit. The company's accounting system reports the following unit product cost for this product: Direct materials Direct labor Manufacturing overhead Total cost Per Unit $18 12 10 $40 The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customer's desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $570 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?
Assume a company manufacturing many products, one of which normally sells for $48 per unit. The company's accounting system reports the following unit product cost for this product: Direct materials Direct labor Manufacturing overhead Total cost Per Unit $18 12 10 $40 The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customer's desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $570 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Assume a company manufacturing many products, one of which normally sells for $48 per unit. The company's
accounting system reports the following unit product cost for this product:
Direct materials
Direct labor
Manufacturing overhead
Total cost
units
The company estimates that $3 of its manufacturing overhead varies with respect to the number of
produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the
relevant range.
A customer has approached the company with an offer to buy 300 units of a customized version of the product
mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To
accommodate the customer's desired product design, the company would incur additional direct materials cost
per unit of $3. It would also have to buy a special tool for $570 that has no other use or resale value after the
special order is completed. Assuming that accepting this order will not have any effect on sales to other
customers, what is the financial advantage (disadvantage) of accepting the special order?
Multiple Choice
O $(300)
O $900
O
Per Unit
$18
12
10
$40
$330
O $(1,770)
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