Each quarter Comito, Inc. produces 120,000 units of a product that has variable costs of $56 per unit. Total fixed costs for the quarter are $90,000. A special order is received which is for 30,000 units at a price of $57 per unit. In deciding to accept or reject this special order, it is appropriate to consider the
A) old fixed cost per unit of $0.75.
B) difference between the offered price and the variable cost per unit, which is $1.00.
C) new fixed cost per unit of $0.60.
D) difference between the two fixed costs per unit, which is $0.15.

Question

Quizplus · Accepted Answer

In deciding whether to accept or reject the special order, we need to determine whether the incremental revenue from the order exceeds the incremental cost of the order.

The incremental revenue from the order is 30,000 units x $57 per unit = $1,710,000.

The incremental cost of the order is 30,000 units x $56 per unit = $1,680,000.

Therefore, the incremental profit from the order is $30,000.

As this incremental profit exceeds zero, it is recommended to accept the special order.

We do not need to consider the old or new fixed cost per unit to make this decision.

Each Quarter Comito, Inc