Exhibit 7-2
Jake Company is considering a special order for 5,000 units at a price of $60 per unit.Jake's product normally sells for $84 per unit and has variable manufacturing costs of $45 per unit and variable selling costs of $9 per unit.Fixed manufacturing costs are $150,000 and fixed selling and administrative costs are $300,000.Jake has capacity to produce 30,000 units and is currently producing 20,000 units.If the order is accepted,,Jake will incur legal fees of $7,500 in connection with the order,but there will be no variable selling costs on the special order.
-Refer to Exhibit 7-2.What are the differential costs associated with the special order?

Question

Quizplus · Accepted Answer

The differential costs associated with the special order are the incremental costs that Jake Company will incur if it accepts the order. These costs include the variable manufacturing costs of $45 per unit, the fixed manufacturing costs of $150,000, and the legal fees of $7,500. The total differential costs are $232,500.

Exhibit 7-2 Jake Company Is Considering a Special Order for 5,000 Units