Decision Problems Are Faced by a Company Which Produces a Range

Essay

Decision problems are faced by a company which produces a range of products and the data is as follows:
Problem 1
The normal selling price of a product is £22 and the full absorption cost per unit is as follows:
£
Raw materials 8.00
Direct Labour 4.00
Variable overhead 3.20
Fixed overhead 4.80
Total absorption cost per unit 20.00
There is the possibility of supplying a special order of 2,000 units of product x at £16 each. If the order were not accepted, the normal budgeted sales would not be affected and the company has the necessary capacity to produce the additional units.
a) You are required, assumed that fixed production costs will not change, to state whether the company should accept the special order above. Explain the costs you use and your reasoning.