Question

Integrated Masters Inc. (IMI) is presently operating at 80% of capacity and manufacturing 131,000 units of a patented electronic component. The cost structure of the component is as follows: Raw materials $ 7.10 per unit Direct labor 7.10 per unit Variable overhead 9.10 per unit Fixed overhead $ 524,000 per year An Italian firm has offered to purchase 21,100 of the components at a price of $29.5 per unit, FOB IMI's plant. The normal selling price is $35.3 per component. This special order will not affect any of IMI's "normal" business. Management calculated that the cost per component is $27.3, so it is reluctant to accept this special order. Required: Calculate the fixed overhead per unit? Is the cost calculation appropriate? Should the offer from the Italian firm be accepted?

Answer 1

Answer:

Instructios are listed below.

Explanation:

Giving the following information:

The cost structure of the component is as follows:

Raw materials $ 7.10 per unit

Direct labor 7.10 per unit

Variable overhead 9.10 per unit

Because there is unused capacity and the special order will not affect "normal" business. We will not have into account the fixed costs.

A) fixed overhead per unit= 524,000/(131,000+21,100)= $3.44

B) Unitary cost= 7.10 + 7.10 + 9.10= $23.3

C) The offer should be accepted because it generates an increase in income.