Assume the following cost data: Per-unit costs:
Direct material $6
Direct labour $4
Variable overhead $2
Variable selling $4
Fixed overhead $300
Fixed selling $400
A special order for 100 units is received. The buyer wants his name stamped on each unit. This will increase labour costs by $0.25 per unit and cost $300 for the stamping machine. What price must be charged to earn $300 on the special order?
A)$1,925
B)$1,775
C)$2,225
D)$2,075

Question

Quizplus · Accepted Answer

To earn a profit of $300 on the special order, the total cost must be $1,200 ($300 fixed overhead + $300 for stamping machine + 100 units * $0.25 increase in labour cost per unit).

Total variable cost per unit is $12 ($6 direct material + $4 direct labour + $2 variable overhead).

Total cost per unit is $16 ($12 variable cost + $300 fixed overhead/100 units).

To earn a profit of $300 on the special order, the price must be $22.25 ($16 total cost per unit + $4 variable selling price). Therefore, the correct answer is choice C, $2,225.

Assume the Following Cost Data: Per-Unit Costs