Asked by Quitta Moore on Jun 18, 2024
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A company normally sells a product for $20 per unit.Variable per unit costs for this product are: $2 direct materials,$4 direct labor,and $1.50 variable overhead.The company is currently operating at 70% of capacity producing 14,000 units per year.Total fixed costs are $42,000 per year.The company should not accept a special order for 2,000 units which would be sold for $10 per unit because there would be an incremental loss on the order.
Incremental Loss
The additional loss incurred from producing one extra unit of a product or service beyond the break-even point.
Special Order
An order for a product that is made to a customer's specifications, differing from regular stock products.
Capacity
The maximum level of output that a company can sustain to produce in a given period under normal circumstances.
- Understand the importance of fixed expenses in the pricing strategy and the acceptance of unique orders.
- Comprehend how fixed and variable costs impact production and sales choices.
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Learning Objectives
- Understand the importance of fixed expenses in the pricing strategy and the acceptance of unique orders.
- Comprehend how fixed and variable costs impact production and sales choices.
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