The following information relates to a product produced by Davison Ltd: Direct m

Question

The following information relates to a product produced by Davison Ltd: Direct materials Direct labour Variable overheads Fixed overheads Unit cost Fixed selling costs are S500,000 per year. Variable selling costs of $2 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Davison expects to produce only 400,000 units next year. The product normally sells for $50 each. A customer has offered to buy 50,000 units for $24 each. The customer will pay the transportation charge on the units purchased. Davison's incremental cost per unit associated with the special order is S5 6 Select one O $17 $16 O $15 O $13

Explanation / Answer

Ans. Option 3rd $15 *Calculation: Incremental cost per unit includes the variable cost per unit.The fixed cost is not an incremental cost. Direct materials 5 Direct labor 2 Variable overheads 6 Variable selling cost 2 Total Incremental cost per unit 15 *Fixed element does not increase by the increase in sales unit, so it is not considered as incremental cost.

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