Answer:
Advantage = $360,000
Explanation:
Since fixed costs cannot be changed, it is unavoidable or irrelevant.
We have to deduct the avoidable expenses from the revenue to find whether Cane accepts the order or not.
Revenue ($112 x 18,000 units) = $2,016,000
Less: Relevant Costs (Product costs)
Direct Material $30 x 18,000 = $540,000
Direct Labor $22 x 18,000 = $396,000
Variable Manufacturing Overhead $20*18,000 = $360,000
Variable Selling expenses <u> $20*18,000 = $360,000</u>
Total Relevant costs <u> $(1,656,000)</u>
Financial advantage of accepting the new order $ 360,000
Therefore, the company should accept the new order.
