Time Unlimited makes grandfather clock kits that it sells to hobbyists who then

Question

Time Unlimited makes grandfather clock kits that it sells to hobbyists who then assemble and finish the clocks. The company has the capacity to make 5,000 of the kits, and its current volume is 3,000 kits. The costs of a clock kit are: $300 for unit-level materials, $200 for unit-level labor, and $150 for an allocation of facility-level overhead. The normal selling price is $950. The Clock Builder has received a special order for 600 clock kits at a price of $600 each.

Required:
Should The Clock Builder accept the special order? Support your answer with appropriate computations.

Explanation / Answer

The Clock Builder should accept the special order as it yields $600 - ($300+$200) = $100 per unit

Fixed Cost is irrelavent because it is going to be incurred regardless of wheather the order is accepted or not.

The additional cost which the Clock Builder would incur is variable cost i.e Direct material $300 and Labor $200.

Hence the special order will yield $100 per unit

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