Question 1

Special Order

Sample question with answer

ABC company has annual productive capacity of 70000 units per year. The

annual sales are 55000 units. The selling price is $8. The variable cost for

manufacturing is $4.40 and the variable selling cost per unit is $1.20

Estimated fixed cost for 2019 are as follows :

Fixed Cost

Manufacturing $95000

Selling & administrative $50000

A manufacturer from another country wants to buy 7000 units at a price of

$6.00 per unit. All fixed cost will remain within the relevant range. Variable

manufacturing costs would be the same per unit , but variable selling cost

would increase by $1.50 per unit for the special order only

REQUIRED

1. Determine whether the company should produce the special order.

2. Assuming XYZ company's objective is to maximize profit , if the

customer wants a special order of 27000 units , should XYZ company

accept or reject special order