Eley Corporation produces a single product. The cost of producing and selling a

Question

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 51,000 units per month is as follows:

An order has been received from an overseas customer for 3,100 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.30 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?

$44.60

$19.40

$20.70

$18.20

The normal selling price of the product is $108.10 per unit.

An order has been received from an overseas customer for 3,100 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.30 less per unit on this order than on normal sales.

Direct labor is a variable cost in this company.

Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?

$44.60

$19.40

$20.70

$18.20

Explanation / Answer

the opportunity cost is the contribution per unit forgone by company at normal sales.

The contribution per unit at normal sales as:

2) Variable cost per unit:

the opportunity cost for each unit delivered to overseas customer is : $44.60

Per unit($) 1) Selling price 108.10

2) Variable cost per unit:

Direct materials 48.10 Direct labour 9.20 Variable manufacturing overheads 2.20 Variable selling & administrative expenses 4.00 Total variable cost 63.50 3) Contribution per unit (1-2) 44.60

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