Majestic Company Manufactures a Product That Has the Following Unit

Essay

Majestic Company manufactures a product that has the following unit costs: direct materials, £5; direct labour, £7; variable overhead, £3; and fixed overhead, £5. Fixed selling costs are £200,000 per year. Variable selling costs of £1 per unit cover the transportation cost. Although production capacity is 80,000 units per year, the company expects to produce only 65,000 units next year. The product normally sells for £30 each. A customer has offered to buy 10,000 units for £18 each. The customer will pay the transportation charge on the units purchased.
Required:
a.What is the incremental cost per unit to Majestic Company for the special order?
b.What is the effect on Majestic's income if the special order is accepted?