Axia Inc. manufactures two electronic products, widgets and gadgets, and has a capacity of 1,000 machine hours. Prices and costs for each product are as follows:

* Variable manufacturing overhead costs are applied at a rate of $40 per machine hour.
Bromont Industries, a potential client, has offered $250 per unit to Axia for 250 special units. These 250 units would incur the following production costs and time:
Direct materials.....................................$8,000
Other direct costs..................................$3,000
Machine hours..........................................225
Instructions
(a) Assume that Axia has enough excess capacity to produce the special order. Calculate what the total contribution would be if the special order from Bromont were accepted.
(b) Assume that Axia is currently operating at full capacity. Determine whether Axia should produce the units for the special order instead of widget or gadget units. Show your calculations.
(c) Assume that Axia is actually operating at 95% of full capacity. Calculate what the opportunity cost would be if Bromont's special order were accepted. Show your calculations.
(d) Assume that Axia is actually operating at 95% of full capacity, and additional machines can be rented at a cost of $35,000 to produce Bromont's special order. If the special order is accepted, calculate its effect on Axia's profit. Show your calculations.

Transcribed Image Text:

Widget Gadget Selling price per unit Variable costs per unit Direct materials Other direct costs $250 $330 30 10 30 35 12 Manufacturing overhead costs*