Rexall Industries produces latches for cabinet doors. They typically sell their latches to cabinet manufacturers who then
Question:
Rexall Industries produces latches for cabinet doors. They typically sell their latches to cabinet manufacturers who then use them in their cabinet construction. The cost of a latch is given below:
Direct materials | $1.50 |
Direct labor | $0.40 |
Variable overhead | $1.20 |
Fixed overhead | $1.00 |
Each unit sells for $7.00.
Currently, Rexall is operating at 490,000 units and has capacity to produce 500,000 units.
Rexall has received a special order for 20,000 units of an upgraded latch from a home improvement store. The special order would require materials of $2.50 per unit (direct labor costs and variable overhead costs would be the same per unit; fixed overhead would not be affected). Clearly, 10,000 units of regular sales would be lost if the special order is accepted.
Answer and Show Work:
(1) Compute the opportunity cost of accepting this order.
(2) Compute the minimum acceptable price for this order.
Cost Accounting A Managerial Emphasis
ISBN: 978-0133392883
6th Canadian edition
Authors: Horngren, Srikant Datar, George Foster, Madhav Rajan, Christ