XYZ Company has the following product costs for its line of Product A: Direct Ma

Question

XYZ Company has the following product costs for its line of Product A: Direct Materials $10 Direct Labor 8 Variable Overhead 6 Fixed Overhead 5* *Fixed overhead includes rent, insurance, and depreciation that has been allocated at the rate of $3 per unit. These costs are unavoidable. They have excess capacity and could handle a special order for 100 units, but the contract offer would allow only a sales price of $27, not their usual rate of $40. If they accept this offer, how much more money will they put to their bottom line? Question 17 options: This would result in a loss of $200. This would result in breakeven. This would result in added income of $100. This would result in a loss of $1300.

Explanation / Answer

This would result in added income of $100. is the right answer Given $3 of $5 of Fixed overhead are unavoidable i.e $2 are avoidable(varies with production) Hence total cost occurs for Special Order = Direct Materials + Direct Labor + VOH + Avoidable FOH = $10 + $8 + $6 + $2 = $26 Profit on Special Order = ($27 - $26) x 100 units = $100 Hence,This would result in added income of $100.

Related Questions

Navigate

• Browse (All)
• Browse X
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.