Savage Company produces and sells 35,000 units at $22 per unit. Savage Company's product cost is calculated as follows: $\begin{array} { l }
\text {Variable-unit-based costs }& \text {\$ 8 perunit } \
\text {Fixed costs}& \text {\$ 2 perunit } \
\text {Set-up costs }& \text {\$ 3 perunit } \
& \text {\$ 13 per unit } \
\end{array}$
A total of 500 set- ups at a cost of $120 per set- up are required to produce the 20,000 units. Savage Company has received a special order to sell 5,000 units at $12 per unit. Savage Company has excess capacity available, but these 5,000 would require 60 set- ups. If Savage Company accepts the special order, Savage Company's cost will increase by:

Question

Savage Company produces and sells 35,000 units at $22 per unit. Savage Company's product cost is calculated as follows: $\begin{array} { l  }
 \text {Variable-unit-based costs }& \text {\$ 8 perunit } \
 \text {Fixed costs}& \text {\$ 2 perunit } \
 \text {Set-up costs  }& \text {\$ 3 perunit } \
& \text {\$ 13 per unit } \
\end{array}$
 A total of 500 set- ups at a cost of $120 per set- up are required to produce the 20,000 units. Savage Company has received a special order to sell 5,000 units at $12 per unit. Savage Company has excess capacity available, but these 5,000 would require 60 set- ups. If Savage Company accepts the special order, Savage Company's cost will increase by:

Quizplus · Accepted Answer

The correct answer is A.The variable-unit-based costs are $8 per unit, the fixed costs are $2 per unit, and the set-up costs are $3 per unit. The total cost per unit is $13. The total cost of producing 35,000 units is $455,000. The total cost of producing 5,000 units is $65,000. The total cost of producing 40,000 units is $520,000. The difference between the total cost of producing 40,000 units and the total cost of producing 35,000 units is $65,000.

Savage Company Produces and Sells 35,000 Units at $22 Per