Question: Custom Metal Works received an offer from a big box retail

Custom Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $200 each Custom Metal Works accountants determine that the following costs apply to the tables:
Direct material........... $100
Direct labor............. 45
Manufacturing overhead........ 70
Total............... $215
Of the $70 of overhead, $14 is variable and $56 relates to fixed costs. The $56 of fixed overhead is allocated as $1.25 per direct labor dollar.

Required
a. What will be the real effect on profit if the order is accepted?
b. Explain why managers who focus on reported cost per unit may be inclined to turn down the order.


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  • CreatedSeptember 23, 2013
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