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Cost Analysis for Special Orders and Obsolete Inventory

A cost analysis focusing on special orders and obsolete inventory, examining financial implications for businesses.

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    Cost Analysis for Special Orders and Obsolete Inventory Question #2 (15 points) Consider the following information , prepared based on a capacity of 60,000 units : Category Cost per Unit Variable manufacturing costs $ 12 .00 F ixed manufacturing costs $3.50 Variable marketing costs $ 4.0 0 Fi xed marketing costs $ 2.50 Capacity cannot be added and the firm currently sells the product for $25 per unit. Consider each of these scenarios independent of each other. a) The company is currently producing 45,000 units per month. A potential customer has contacted the firm and offered to purchase 10,000 units this month only. Since the potential customer approached the firm, there will be no variable marketing costs incurred. What is the minimum amount that the firm should be willing to accept for this order? We need to find the minimum price the company should be willing to accept for this order of 10,000 units. Information: • Variable manufacturing cost per unit = $12.00 • Fixed manufacturing cost per unit = $3.50 (This is a fixed cost, so it is not relevant for the special order, since it does not change with the volume of units produced.) • Variable marketing cost per unit = $4.00 (No variable marketing costs are incurred for this order, so this cost is not relevant.) • Fixed marketing cost per unit = $2.50 (This is also a fixed cost, so it is not relevant for the special order.) • Selling price per unit (current) = $25.00 (This is the price for regular sales, but we are looking for the minimum price for the special order.) Relevant Costs for the Special Order: • Relevant cost for variable manufacturing = $12.00 per unit (since this cost will vary depending on the number of units produced) • No marketing cost is relevant because the special customer won’t incur any variable marketing costs. The minimum price the firm should be willing to accept for this order is the sum of the relevant costs per unit.

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