A company is considering a special order for 1,000 units to be priced at $8.90 (the normal price would be $11.50).The order would require specialized materials costing $4.00 per unit.Direct labor and variable factory overhead would cost $2.15 per unit.Fixed factory overhead is $1.20 per unit.However,the company has excess capacity and acceptance of the order would not raise total fixed factory overhead.The warehouse,however,would have to add capacity costing $1,300.Which of the following is relevant to the special order?
A)$11.50 normal selling price
B)$1.20 fixed factory overhead per unit
C)$7.35 spent on donuts and coffee
D)$8.90 selling price per unit of special order
E)none of these

Question

Quizplus · Accepted Answer

The selling price per unit of the special order is relevant because it is necessary to determine if the price will cover the costs of materials, direct labor, and variable factory overhead, as well as the additional cost of adding warehouse capacity. The normal selling price (A) is not relevant, as it does not affect the decision to accept the special order. The fixed factory overhead per unit (B) is also not relevant, as the acceptance of the special order would not raise total fixed factory overhead. The amount spent on donuts and coffee (C) is not relevant, as it has no bearing on the decision to accept the special order.

A Company Is Considering a Special Order for 1,000 Units