A production costs summary for Comapny A is as follows:
- Unit-level direct material $ 5.00/unit
- Unit-level direct labor 2.00/unit
- Unit-level overhead 6.00/unit
- Product-level overhead 4.00/unit
- Total cost per unit $17.00
Fixed facility-level selling costs are $600,000 per year and unit-level selling costs are $2. The unit-level selling costs consist primarily of shipping and packaging costs. Production capacity is 400,000 units, but Davidson only expects to produce (and sell) 250,000 units next year. The normal selling price of the product is $30 per unit. A merchant has made an offer to purchase 50,000 units at $24 each.
The relevant incremental cost per unit associated with the special order is how much?
If Company A accepts a special offer, profitability will either increase or decrease and how much?
Is any of these statements true:
- The facility-level selling costs are relevant to the special offer decision.
- The product-level production costs are relevant to the special offer decision.
- The unit-level selling costs are not relevant to the special offer decision.