Majestic Company manufactures a product that has the following unit costs: direc

Question

Majestic Company manufactures a product that has the following unit costs: direct materials. $5; direct labor. $7; variable overhead. $3; and fixed overhead. $5. Fixed selling costs are $200,000 per year. Variable selling coats of $1 per unit cover the transportation cost. Although production capacity is 80,000 units per year, the company expects to province 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: What is the incremental cost per unit to Majestic Company for the special order? What in the effect on Majesties income if the special order is accepted?

Explanation / Answer

Part A

Part B

In view of the special order the profit will increase by $20000

Particulars Amount Per Unit Direct material 5 Direct labour 7 Variable Overhead 3 Variable Selling Cost 1 Total Incremental Cost Per Unit 16

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