Integrated Masters Inc. (IMI) is presently operating at 50% of capacity and manufacturing 50,000 units of a patented electronic component. The cost structure of the component is as follows: Raw materials $ 1.50 per unit Direct labor 1.50 per unit Variable overhead 2.00 per unit Fixed overhead $ 100,000 per year An Italian firm has offered to purchase 30,000 of the components at a price of $6 per unit, FOB IMI’s plant. The normal selling price is $8 per component. This special order will not affect any of IMI’s “normal” business. Management calculated that the cost per component is $7, so it is reluctant to accept this special order. Required: Calculate the fixed overhead per unit? Is the cost calculation appropriate? Should the offer from the Italian firm be accepted?
Integrated Masters Inc. (IMI) is presently operating at 50% of capacity and manufacturing 50,000 units of a patented electronic component. The cost structure of the component is as follows: Raw materials $ 1.50 per unit Direct labor 1.50 per unit Variable overhead 2.00 per unit Fixed overhead $ 100,000 per year An Italian firm has offered to purchase 30,000 of the components at a price of $6 per unit, FOB IMI’s plant. The normal selling price is $8 per component. This special order will not affect any of IMI’s “normal” business. Management calculated that the cost per component is $7, so it is reluctant to accept this special order. Required: Calculate the fixed overhead per unit? Is the cost calculation appropriate? Should the offer from the Italian firm be accepted?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Integrated Masters Inc. (IMI) is presently operating at 50% of capacity and manufacturing 50,000 units of a patented electronic component. The cost structure of the component is as follows:
| Raw materials | $ | 1.50 | per unit |
| Direct labor | 1.50 | per unit | |
| Variable |
2.00 | per unit | |
| Fixed overhead | $ | 100,000 | per year |
An Italian firm has offered to purchase 30,000 of the components at a price of $6 per unit, FOB IMI’s plant. The normal selling price is $8 per component. This special order will not affect any of IMI’s “normal” business. Management calculated that the cost per component is $7, so it is reluctant to accept this special order.
Required:
- Calculate the fixed overhead per unit?
- Is the cost calculation appropriate?
- Should the offer from the Italian firm be accepted?
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