Calculation of company's net operating income and quantitative accounting analysis.
Rubye Company produces a single product, a jar of face cream. The cost of producing and selling a single jar of this product at the company's normal activity level of 80,000 jars per month is as follows:
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Direct materials...............
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$37.50
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Direct labor....................
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$6.00
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Variable manufacturing overhead....................
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$1.00
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Fixed manufacturing overhead......................
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$11.50
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Variable selling & administrative expense...........
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$1.80
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Fixed selling & administrative expense.................
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$8.00
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The normal selling price of the product is $71.10 per unit.
An order has been received from an overseas customer for 1,000 jars to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.50 less per jar on this order than on normal sales.
A. Suppose there is ample idle capacity to produce the jars of cream required by the overseas customer and the special discounted price on the special order is $63.70 per jar. By how much would this special order increase (decrease) the company's net operating income for the month?
B. Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?
C. Suppose there is not enough idle capacity to produce all of the units for the overseas customer and accepting the special order would require cutting back on production of 400 units for regular customers. The minimum acceptable price per unit for the special order is closest to:
Provide appropriate quantitative accounting analysis to support your answers to the three questions A through C.