Z-Tech produces a single product. The cost of producing and selling a single unit of this product at the company’s current activity level of 8,000 units per month is as follows:
Cost Per Unit Direct materials . . . . . . . . . . . . . . $2.50 Direct labor. . . . . . . . . . . . . . . . . . $3.00 Variable manufacturing overhead $0.50 Fixed manufacturing overhead. . $4.25 Variable selling & administrative $1.50 Fixed selling & administrative. . . $2.00
The normal selling price is $15 per unit. The company’s capacity is 10,000 units per month. An order has been received from an overseas source for 2,000 units at t price of $12 per unit. This would would not affect regular sales.
Required: If the order is accepted, by how much will monthly profits be increased or decreased? Show your computations. (The order would not change the company’s total fixed costs.)
Special Order
Cost Per Unit
Direct materials . . . . . . . . . . . . . . $2.50
Direct labor. . . . . . . . . . . . . . . . . . $3.00
Variable manufacturing overhead $0.50
Fixed manufacturing overhead. . $4.25
Variable selling & administrative $1.50
Fixed selling & administrative. . . $2.00
Required:
If the order is accepted, by how much will monthly profits be increased or decreased? Show your computations. (The order would not change the company’s total fixed costs.)
