Grizzly Company
Grizzly Company manufactures footballs.The forecasted income statement for the year before any special orders is as follows:

Refer to Grizzly Company.Fixed costs included in the above forecasted income statement are $1,200,000 in manufacturing CGS and $100,000 in selling expenses.Grizzly received a special order offering to buy 50,000 footballs for $7.50 each.There will be no additional selling expenses if Grizzly accepts.Assume Grizzly has sufficient capacity to manufacture 50,000 more footballs.The unit relevant cost for Grizzly's decision is
A)$8.00
B)$5.00
C)$8.75
D)$5.75

Question

Grizzly Company
Grizzly Company manufactures footballs.The forecasted income statement for the year before any special orders is as follows:

Refer to Grizzly Company.Fixed costs included in the above forecasted income statement are $1,200,000 in manufacturing CGS and $100,000 in selling expenses.Grizzly received a special order offering to buy 50,000 footballs for $7.50 each.There will be no additional selling expenses if Grizzly accepts.Assume Grizzly has sufficient capacity to manufacture 50,000 more footballs.The unit relevant cost for Grizzly's decision is
A)$8.00 
B)$5.00 
C)$8.75 
D)$5.75

Quizplus · Accepted Answer

To determine the relevant cost for Grizzly's decision, we need to consider only the incremental costs and benefits of accepting the special order. The incremental manufacturing cost would include direct materials, direct labor, and variable manufacturing overhead, which is $4.50 per football (total variable manufacturing costs of $225,000 divided by 50,000 units). Therefore, the unit relevant cost is $4.50 + $0 (no additional selling expenses) = $4.50. Since the special order is offering to buy the footballs for $7.50 each, the incremental benefit is $7.50 per football. Subtracting the incremental cost from the incremental benefit, the special order will increase the company's profit by $3.00 per football. Since this is greater than the current contribution margin per football of $2.50, Grizzly Company should accept the special order. The best choice is B.

Grizzly Company Grizzly Company Manufactures Footballs.The Forecasted Income Statement for the Year