The Dolomite Division of Manila Bay Corp. produces a high-quality crushed synthetic Dolomite. Unit production costs (based on capacity production of 100,000 units per year) follow: Direct material $50 Direct labor 20 Overhead (20% variable) 10 Other information: Sales price 100 SG&A costs (40% variable) 15 Refer to Dolomite Division of Manila Bay Corp. Assume, for this question only, that the Dolomite Division is producing and selling at capacity. What is the minimum selling price that the division would consider on a "special order" of 1,000 Dolomites on which no variable period costs would be incurred?
The Dolomite Division of Manila Bay Corp. produces a high-quality crushed synthetic Dolomite. Unit production costs (based on capacity production of 100,000 units per year) follow: Direct material $50 Direct labor 20 Overhead (20% variable) 10 Other information: Sales price 100 SG&A costs (40% variable) 15 Refer to Dolomite Division of Manila Bay Corp. Assume, for this question only, that the Dolomite Division is producing and selling at capacity. What is the minimum selling price that the division would consider on a "special order" of 1,000 Dolomites on which no variable period costs would be incurred?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The Dolomite Division of Manila Bay Corp. produces a high-quality crushed synthetic Dolomite. Unit production costs (based on capacity production of 100,000 units per year) follow:
| Direct material |
$50
|
| Direct labor |
20
|
|
10
|
|
| Other information: | |
| Sales price |
100
|
| SG&A costs (40% variable) |
15
|
Refer to Dolomite Division of Manila Bay Corp. Assume, for this question only, that the Dolomite Division is producing and selling at capacity. What is the minimum selling price that the division would consider on a "special order" of 1,000 Dolomites on which no variable period costs would be incurred?
Solution:
Direct Material 50
Direct Labor 20
Overhead 10
SG&A 9
Opportunity Cost 5
Total 94
Please explain how to get the opportunity cost of $5.
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