### Integrated Masters Inc. (IMI) Special Order AnalysisIntegrated Masters Inc. (IMI) is currently operating at 80% of its capacity with an annual production of 110,000 units of a patented electronic component. The cost structure per component is outlined as follows:| Cost Element | Amount ||---------------------|--------------------|| Raw materials | $7.20 per unit || Direct labor | $7.20 per unit || Variable overhead | $9.20 per unit || Fixed overhead | $451,000 per year |An Italian firm has proposed to purchase 21,200 units of the component at $30.0 per unit, FOB IMI's plant. The regular selling price is $35.6 per component. This special order will not affect any of IMI's existing business activities. However, management has calculated the cost per component to be $27.7, making them hesitant to accept this offer.**Required:**a. Calculate the fixed overhead per unit.b. Is the cost calculation appropriate?c. Should the offer from the Italian firm be accepted?#### Detailed Analysis1. **Calculating Fixed Overhead Per Unit:** - Annual fixed overhead: $451,000 - Number of units produced annually: 110,000 - Fixed overhead per unit = $\frac{\$451,000}{110,000} ≈ \$4.10$2. **Cost Calculation Appropriateness:** To determine if the cost calculation is appropriate, we need to compare the proposed special order price with the total variable and relevant incremental fixed costs: - Total variable cost per unit (Raw materials + Direct labor + Variable overhead): - $7.20 + $7.20 + $9.20 = $23.60 per unit - Assuming fixed overhead should not be included in incremental cost decision if capacity exists, the cost consideration should primarily focus on variable costs.3. **Decision on Offer:** - Total variable cost per unit: $23.60 - Special order price per unit: $30.0 - Contribution margin per unit: $30.0 - $23.60 = $6.40 per unit - Since the contribution margin is positive and capacity exists to fulfill this order without impacting existing operations, IMI should accept the special order to improve

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Description: ### Integrated Masters Inc. (IMI) Special Order AnalysisIntegrated Masters Inc. (IMI) is currently operating at 80% of its capacity with an annual production of 110,000 units of a patented electronic component. The cost structure per component is ou

Special orders are those which are received in addition to the regular orders. Special orders…

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Integrated Masters Inc. (IMI) is presently operating at 80% of capacity and manufacturing 110,000 units of a patented electronic component. The cost structure of the component is as follows: Raw materials Direct labor Variable overhead Fixed overhead 7.20 per unit 7.20 per unit 9.20 per unit $451,000 per year An Italian firm has offered to purchase 21,200 of the components at a price of $30.0 per unit, FOB IMI's plant. The normal selling price is $35.6 per component. This special order will not affect any of IMI's "normal" business. Management calculated that the cost per component is $27.7, so it is reluctant to accept this special order. Required: a. Calculate the fixed overhead per unit? b. Is the cost calculation appropriate? c. Should the offer from the Italian firm be accepted?

Integrated Masters Inc. (IMI) is presently operating at 80% of capacity and manufacturing 110,000 units of a patented electronic component. The cost structure of the component is as follows: Raw materials Direct labor Variable overhead Fixed overhead 7.20 per unit 7.20 per unit 9.20 per unit $451,000 per year An Italian firm has offered to purchase 21,200 of the components at a price of $30.0 per unit, FOB IMI's plant. The normal selling price is $35.6 per component. This special order will not affect any of IMI's "normal" business. Management calculated that the cost per component is $27.7, so it is reluctant to accept this special order. Required: a. Calculate the fixed overhead per unit? b. Is the cost calculation appropriate? c. Should the offer from the Italian firm be accepted?

FINANCIAL ACCOUNTING

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Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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