Q1) Company XY manufactures lawn furniture. Cost per lawn chair is evaluated as follows:
Direct Labor $2.25
Materials $2.30
Plant overhead $1.15
Administrative and selling expense $0.80
Total $6.50 per unit
These costs are assigned to each unit of output bases on projected annual production of 500,000 chairs.
Company added $0.65 markup to price to arrive at selling price of $7.15 per unit
Company ABC wishes to buy 30,000 chairs at $5.50 each.
1. What is the marginal cost per chair to XY of accepting chair order from ABC?
2. What suppositions were made in computing marginal cost?