Golden Company sells its product for Rs. 42 per unit. The company\'s unit produc

Question

Golden Company sells its product for Rs. 42 per unit. The company's unit product cost based on the full capacity of 400,000 units is as follows: Direct materials Rs. 8 Direct labor 10 Manufacturing overhead 12 Unit product cost Rs. 30 A special order offering to buy 40,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be Rs. 6 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. Two - thirds of the manufacturing overhead is fixed and would not be affected by this order. Assume that direct labor is an avoidable cost in this decision. In negotiating a price for the special order, calculate the minimum acceptable selling price per unit?

Explanation / Answer

Computation of minimum acceptable selling price per unit: Direct Materials Rs 8 Manufacturing Overhead(1/3 of 12) Rs 4 Selling Cost Rs 6 minimum acceptable selling price per unit Rs 18 Thus, the minimum acceptable selling price per unit is Rs 18 per unit

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