Each month Barrett Company produces 4,000 units of a product that has variable costs of $10 per unit. Total fixed costs for the month are $14,800. A special order is received which is for 625 units at a price of $12 per unit. Relevant to the decision of whether to accept or reject this special order is the
A) old fixed cost per unit of $3.70.
B) new fixed cost per unit of $3.20.
C) difference between the offered price and the variable cost per unit, which is $2.00.
D) difference between the two fixed costs per unit, which is $0.50.

Question

Quizplus · Accepted Answer

The relevant factor is the contribution margin per unit from the special order, which is the difference between the offered price ($12) and the variable cost per unit ($10), resulting in $2.00 per unit. Fixed costs are not relevant as they do not change with the special order.

Each Month Barrett Company Produces 4,000 Units of a Product