Assume a company manufactures many products, one of which normally sells for $48 per unit. The companys accounting system reports the following unit product cost for this product:

	Per Unit
Direct materials	$ 18
Direct labor	12
Manufacturing overhead	10
Total cost	$ 40

The company estimates that $3 of its manufacturing overhead varies with respect to the number of units produced. The remainder of its overhead is fixed and unaffected by the volume of units produced within the relevant range. A customer has approached the company with an offer to buy 300 units of a customized version of the product mentioned above for $39. The company can fulfill this order using existing manufacturing capacity. To accommodate the customers desired product design, the company would incur additional direct materials cost per unit of $3. It would also have to buy a special tool for $530 that has no other use or resale value after the special order is completed. Assuming that accepting this order will not have any effect on sales to other customers, what is the financial advantage (disadvantage) of accepting the special order?

Garrison 17e Rechecks 2020-09-29

Multiple Choice

• $(300)

• $900

• $370

• $(1,730)