Question

CompuTronics, a manufacturer of computer peripherals, has excess capacity. The company's Utah plant has the following per-unit cost structure for item no. 89:
Variable manufacturing $ 60
Fixed manufacturing 25
Variable selling 8
Fixed selling 11
Traceable fixed administrative 4
Allocated administrative 2

The traceable fixed administrative cost was incurred at the Utah plant; in contrast, the allocated administrative cost represents a "fair share" of CompuTronics' corporate overhead. Utah has been presented with a special order of 5,600 units of item no. 89 on which no selling cost will be incurred. The proper relevant cost in deciding whether to accept this special order would be:

a. $60.
b. $89.
c. $91.
d. $110.
e. None of these.

Answer 1

Answer:

a. $60.

Explanation:

While computing the relevant cost in case of special order only the variable manufacturing cost is to be considered as it will be changed in special order case.

And the other cot like - fixed manufacturing, variable & fixed selling, traceable fixed administrative cost, etc are not relevant as it remains constant

These costs are not useful for decision making. Hence, it is to be ignored