The Ellis Machine Tool Company is considering production for a special order for 10,000pieces at $0.65 apiece, which is below the regular price. The current operating level, which is below full capacity of 70,000 pieces, shows the operating results as contained in the following report.
The regular production during the year was 50,000 pieces.
Sales @ $1
$50,000
Direct materials
$20,000
Direct labor
10,000
Factory overhead:
Supervision
$3,500
Depreciation
1,500
Insurance
100
Rental
400
5,500
35,500
$14,500
Factory overhead costs will continue regardless of the decision.
(a) What are the incremental costs, if any, in this decision problem? Prepare a schedule showing the incremental cost. (b) Which costs, if any, represent sunk costs? (c) What would be the opportunity cost, if any, associated with the special order?