Marginal costs calculations and the assumptions on capacity and requirement of fixed expenses.
Company XY manufactures lawn furniture. The cost per lawn chair is estimated as follows:
Direct Labor $2.25
Materials $2.30
*Plant overhead $1.15
*Administrative and selling expense $0.80
Total $6.50 per unit
* These costs are allocated to each unit of output bases on the projected annual production of 500,000 chairs.
Company added $0.65 markup to price to arrive at the selling price of $7.15 per unit
Company ABC wants to purchase 30,000 chairs at $5.50 each.
1. What is the marginal cost per chair to XY of accepting the chair order from ABC?
2. What assumptions were made in calculating the marginal cost?