Assume the following cost data:
$\begin{array}{l}
\text { Per-unit costs: }\
\begin{array} { l r }
\text { Direct material } & \$ 6 \
\text { Direct labor } & \$ 4 \
\text { Variable overhead } & \$ 2 \
\text { Variable selling } & \$ 4 \
\text { Fxed overhead } & \$ 300 \
\text { Fxed selling } & \$ 400
\end{array}
\end{array}$
A special order for 100 units is received. The buyer wants his name stamped on each unit. This will increase labour costs by $1.00 per unit and cost $500 for the stamping machine. What price must be charged to earn $300 on the special order?
A) $2,700
B) $2,100
C) $2,225
D) $2,500

Question

Assume the following cost data:
 $\begin{array}{l}
\text { Per-unit costs: }\
\begin{array} { l r } 
\text { Direct material } & \$ 6 \
\text { Direct labor } & \$ 4 \
\text { Variable overhead } & \$ 2 \
\text { Variable selling } & \$ 4 \
\text { Fxed overhead } & \$ 300 \
\text { Fxed selling } & \$ 400
\end{array}
\end{array}$ 
A special order for 100 units is received. The buyer wants his name stamped on each unit. This will increase labour costs by $1.00 per unit and cost $500 for the stamping machine. What price must be charged to earn $300 on the special order?
A) $2,700
B) $2,100
C) $2,225
D) $2,500

Quizplus · Accepted Answer

To calculate the price needed to earn $300 on the special order, first, calculate the total variable costs per unit, which are $6 (direct material) + $4 (direct labor) + $1 (additional labor cost) + $2 (variable overhead) + $4 (variable selling) = $17 per unit. For 100 units, the total variable costs are $17 * 100 = $1,700. Then, add the fixed costs, which are $300 (fixed overhead) + $400 (fixed selling) + $500 (stamping machine) = $1,200. The total cost is $1,700 (total variable costs) + $1,200 (total fixed costs) = $2,900. To earn $300 on the order, the price charged must be $2,900 (total costs) + $300 (desired profit) = $3,200. However, since this option is not available, it appears there was a mistake in my calculation or interpretation of the options provided. Let's correct the approach:The correct calculation should consider the total costs and the desired profit to find the correct selling price for the special order. The total variable costs for 100 units are indeed $1,700, and the fixed costs related to the order are $500 for the stamping machine (since the other fixed costs are sunk and not incremental for this order). Adding the desired profit of $300 gives us the total amount needed from the sale.Revised calculation: $1,700 (variable costs for 100 units) + $500 (stamping machine) + $300 (desired profit) = $2,500.Therefore, the correct price to charge to achieve a $300 profit on the special order is $2,500.

Assume the Following Cost Data A Special Order for 100 Units Is Received