Rafique Inc. makes product A and sells at selling price of SAR 45 per unit. Badr

Question

Rafique Inc. makes product A and sells at selling price of SAR 45 per unit. Badr Inc. wants to buy 5,000 units at SAR 27 per unit. Rafique Inc. has a normal capacity of 101,000 units and projected sales to regular customers this year is 92,000 units. Per unit costs traceable to the product (based on normal capacity of 92,000 units) are listed below?

Direct Materials       8.1

Direct Labour   `       6.0

Variable Mfg. Overhead   6.2

Fixed mfg. overhead       4.8

Fixed administrative costs   0.8

Fixed Selling Costs       0.4

Does the quantitative analysis suggest that the company should accept the special order?

plz no photo answers or handwriting

Explanation / Answer

Incremental analysis :

Yes, company should accept the special order.

Incremental revenue (5000*27) 135000 Incremental cost Direct material (5000*8.1) (40500) Direct labour (5000*6) (30000) Variable mfg overhead (5000*6.2) (31000) Total incremental cost (101500) Incremental profit 33500

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