The plant is not operating at full capacity. Presently, the volume of production is 248,769 units....

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The plant is not operating at full capacity. Presently, the volume of production is 248,769 units. The fixed overhead cost is P189,535 under the present operating conditions. The costs per unit are as follows: Item Cost Direct Materials (VC) P 1.34 Direct Labor (VC) 2.00 Variable Overhead Costs 0.50 Fixed Overhead Per Unit 0.75 An offer is received from a foreigner importer to buy 62,812 units at P4.71 per unit. Management hesitates to accept this offer because this price is less than the total cost per unit as computed under the usual costing method, and also because the current selling price is P5.21. It is assumed that the fixed overhead costs will not increase even though the production of the firm will be expanded to 100% capacity. Fixed selling and administrative costs under the present schedule production total to P82,768, and this will not be affected by the additional production. The plant is not operating at full capacity. Presently, the volume of production is 248,769 units. The fixed overhead cost is P189,535 under the present operating conditions. The costs per unit are as follows: Item Cost Direct Materials (VC) P 1.34 Direct Labor (VC) 2.00 Variable Overhead Costs 0.50 Fixed Overhead Per Unit 0.75 An offer is received from a foreigner importer to buy 62,812 units at P4.71 per unit. Management hesitates to accept this offer because this price is less than the total cost per unit as computed under the usual costing method, and also because the current selling price is P5.21. It is assumed that the fixed overhead costs will not increase even though the production of the firm will be expanded to 100% capacity. Fixed selling and administrative costs under the present schedule production total to P82,768, and this will not be affected by the additional production.

Answer rating: 100% (QA)

First lets calculate the total cost per unit under the present operating conditions Total Variable C... View the full answer