Problem
Julison Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of60,000 units per month is as follows:
Direct Materials $ 34,00
Direct labor $ 4,00
Variable Manufacturing overhead $ 2,00
Fixed Manufacturing overhead $ 21,30
Variable selling and administrative expenses $ 2,70
Fixed selling and administrative expenses $ 7,00
The normal selling price of the product is $79.80 per unit.
An order has been received from an overseas customer for 2,000 units to bedelivered this month at a special discounted price. This order would have noeffect on the company's normal sales and would not change the totalamount of the company's fixed costs. The variable selling and administrativeexpense would be $0.30 less per unit on this order than on normal sales.Direct labor is a variable cost in this company.
Task
1. Suppose there is ample idle capacity to produce the units required by theoverseas customer and the special discounted price on the special order is$71.60 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?
2. Suppose the company is already operating at capacity when the specialorder is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?
3. Suppose there is not enough idle capacity to produce all of the units forthe overseas customer and accepting the special order would require cuttingback on production of 700 units for regular customers. What would be theminimum acceptable price per unit for the special order?