Majestic Company manufactures a product that has the following unit costs: direct materials, £5; direct labour, £7; variable overhead, £3; and fixed overhead, £5. Fixed selling costs are £200,000 per year. Variable selling costs of £1 per unit cover the transportation cost. Although production capacity is 80,000 units per year, the company expects to produce only 65,000 units next year. The product normally sells for £30 each. A customer has offered to buy 10,000 units for £18 each. The customer will pay the transportation charge on the units purchased.
Required:
a.
What is the incremental cost per unit to Majestic Company for the special order?
b.
What is the effect on Majestic's income if the special order is accepted?

Question

Quizplus · Accepted Answer

The Answer of Majestic Company manufactures a product that has the following unit costs: direct materials, £5; direct labour, £7; variable overhead, £3; and fixed overhead, £5. Fixed selling costs are £200,000 per year. Variable selling costs of £1 per unit cover the transportation cost. Although production capacity is 80,000 units per year, the company expects to produce only 65,000 units next year. The product normally sells for £30 each. A customer has offered to buy 10,000 units for £18 each. The customer will pay the transportation charge on the units purchased.
Required:
a.
What is the incremental cost per unit to Majestic Company for the special order?
b.
What is the effect on Majestic's income if the special order is accepted?

Majestic Company Manufactures a Product That Has the Following Unit