Question: Mathews pic anticipates that it will produce 5,000 units per annum at a selling price of £6.00 each. At that level of production, the costs will be:
£
Direct materials 1.60
Direct labour 2.00
Factory overheads: variable 0.80
fixed 0.30
Fixed administration and selling overheads 0.50
Total cost 5.20
(a) A customer has placed a special order and has requested a discount price of £5.00 per unit. Should this order be accepted?
(b) By reducing the selling price to £5.50 per unit, sales could be increased to 7,000 units without incurring additional fixed costs. Is this price reduction advisable?