Answer:
a) Financial advantage <u> $2,208
</u>
b) The company should accept the special order, as it will increase its profit by $2,208
Explanation:
<em>The relevant costs for decision to accept the special order are </em>
<em>I Incremental Revenue from the special order </em>
<em>2. incremental variable cost
</em>
<em>3. The cost of the special tool</em>
Unit variable cost = 143 + 90 + 8 + 7 = $240
<em>Note that that the increase in material cost of $8 and the variable manufacturing overhead of $7 are relevant to the special order decision. Hence they are added.</em>
<em>And the balance of manufacturing overhead would be incurred either way. Therefore , they are not relevant for the decision</em>
$
Sales revenue from special order
(22× $361.00) 7942
Variable cost of special order
(22× $240
) (5280
)
Cost of special tool <u> (454)</u>
Financial advantage <u> 2,208
</u>
The company should accept the special order, as it will increase its profit by $2,208
