Younes Inc. manufactures industrial components. One of its products, which is used in the construction of industrial air conditioners, is known as P06. Data concerning this product are given below: Per Unit Selling price $ 220 Direct materials $ 38 Direct labor $ 1 Variable manufacturing overhead $ 8 Fixed manufacturing overhead $ 16 Variable selling expense $ 4 Fixed selling and administrative expense $ 16The above per unit data are based on annual production of 4,000 units of the component. Assume that direct labor is a variable cost.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
| Per Unit | ||
| Selling price | $ | 220 |
| Direct materials | $ | 38 |
| Direct labor | $ | 1 |
| Variable manufacturing |
$ | 8 |
| Fixed manufacturing overhead | $ | 16 |
| Variable selling expense | $ | 4 |
| Fixed selling and administrative expense | $ | 16 |
The company has received a special, one-time-only order for 400 units of component P06. There would be no variable selling expense on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Younes has excess capacity and can fill the order without cutting back on the production of any product, what is the minimum price per unit below which the company should not accept the special order?
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$220 per unit
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$47 per unit
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$83 per unit
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$63 per unit
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