10 pts. 1. A manufacturer of T-shirts normally sells at a price of P90.00/piece.
ID: 2396947 • Letter: 1
Question
10 pts. 1. A manufacturer of T-shirts normally sells at a price of P90.00/piece. The unit cost breakdown given by the Accounting Department shows the following Unit variable costs: Direct materials Direct labor Variable overhead P 38.50 20.00 3.50 P 62.00 Allocated fixed costs per unit: Factory overhead & depreciation 7.80 Selling & administrative 5.20 13.00 P 75.00 expenses Total cost per piece At a time when plant capacity utilization was only 65%, the company received an inquiry from a potential customer who wanted to have 20,000 pieces made to order for a one-time promo campaign. Due to budgetary constraints, the customer offered a price of only P74.50 per piece, take-it-or-leave-it basis. The product will be made from the same material as the regular products, Direct labor will be 5% higher, while variable overhead will increase by 6%. The order could be done in one month, bringing utilization up to 85% during this period. Should the company accept or reject the order? Justify your answer with computations. ersion 3
Explanation / Answer
Relevant Cost per unit:-
Direct Material (38.50 * 104%)
40.04
Direct Labour (20 * 105%)
21
Variable O/H (3.5 * 106%)
3.71
Relevant Cost per unit
64.75
Customer offer price = 74.50
Relevant cost = 64.75
Yes the company should accept the order due to benefit pu = 74.50 – 64.75 = 9.75
Direct Material (38.50 * 104%)
40.04
Direct Labour (20 * 105%)
21
Variable O/H (3.5 * 106%)
3.71
Relevant Cost per unit
64.75
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.