rr Digital Devices, Incorporated has received a special order to manufacture 10,000 CD ROMdrives for an Italian computer manufacturer. Digital determines that the order will not affectits current domestic sales of CD ROM drives and because of the special nature of the orderno sales commission would be paid. However, to process the order for export, an additionalhandling cost of $10 per unit is estimated. The order indicates that the price of the drivescannot exceed $200.The company has the capacity to produce 100,000 units annually but is currently operating at75% of available capacity. Unit selling price and costs, based on estimated actual capacitybeing utilized, are as follows:Selling priceExpenses:Direct materialsDirect laborJ$ 8040Variable manufacturing overhead 50Fixed manufacturing overhead 30Sales commission268$ 234$ 260Fixed administrative expensesTotal Required:1. Prepare a relevant cost analysis showing the effect on profit if the company accepts thespecial order.2. How would your analysis change if Digital Devices, Incorporated, was producing andselling 100,000 units annually?Required A Required BSalesLess relevant costs:GPrepare a relevant cost analysis showing the effect on profit if the company accepts the special order.Digital Devices, IncorporatedEffect of Special Order on ProfitsPer UnitDirect materialsDirect laborVariable manufacturing overheadExport handling cost✔Total

In management accounting the term relevant cost really matters. The relevant cost is the cost which…

Digital Devices, Incorporated has received a special order to manufacture 10,000 CD ROM drives for an Italian computer manufacturer. Digital determines that the order will not affect its current domestic sales of CD ROM drives and because of the special nature of the order no sales commission would be paid. However, to process the order for export, an additional handling cost of $10 per unit is estimated. The order indicates that the price of the drives cannot exceed $200. The company has the capacity to produce 100,000 units annually but is currently operating at 75% of available capacity. Unit selling price and costs, based on estimated actual capacity being utilized, are as follows: Selling price Expenses: Direct materials Direct labor $ 80 40 Variable manufacturing overhead 50 Fixed manufacturing overhead 30 26 Sales commission $ 260 Fixed administrative expenses Total 8 $ 234