Juett Company Produces a Single Product The Normal Selling Price of the Product Is $72

question 32

Essay

Juett Company produces a single product.The cost of producing and selling a single unit of this product at the company's normal activity level of 70,000 units per month is as follows:
$\begin{array}{|l|r|}\hline \text { Direct Materials } & \$ 29.6 \\\hline \text { Direct Labour } & \$ 5.80 \\\hline \text { Variable Manufacturing Overhead } & \$ 2.50 \\\hline \text { Fixed Manufacturing Overhead } & \$ 17.20 \\\hline \text { Variable Selling \& Administrative Expense } & \$ 1.80 \\\hline \text { Fixed Selling \& Administrative Expense } & \$ 6.70 \\\hline\end{array}$
The normal selling price of the product is $72.90 per unit.
An order has been received from an overseas customer for 2,000 units to be delivered this month at a special discounted price.This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs.The variable selling and administrative expense would be $1.10 less per unit on this order than on normal sales.
Direct labour is a variable cost in this company.
Required:
a)Suppose there is ample idle capacity to produce the units required by the overseas customer,and the special discounted price on the special order is $66.10 per unit.By how much would this special order increase (decrease)the company's operating income for the month?
b)Suppose the company is already operating at capacity when the special order is received from the overseas customer.What would be the opportunity cost of each unit delivered to the overseas customer?
c)Suppose there is not enough idle capacity to produce all of the units for the overseas customer,and accepting the special order would require cutting back on production of 1,300 units for regular customers.What would be the minimum acceptable price per unit for the special order?

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Definitions:

Regulation D

A set of SEC regulations offering exemptions from the registration requirements for certain private placements of securities.

Securities Act of 1933

A U.S. law enacted to regulate the offer and sale of securities, primarily aimed at preventing deceit, misrepresentations, and other fraud in the securities industry.

Preferred Shares

A class of ownership in a corporation that has a higher claim on assets and earnings than common shares, often with dividends that are paid out before those of common shares.

Securities Act

U.S. legislation enacted in 1933 to regulate the sale of securities, primarily aimed at preventing fraud in the securities market.