Premium Co. produces park benches. A customer has offered Premium Co. $700 per unit for 100 units. The normal selling price is $850 per bench. To fill the order, Chris would incur unit-level costs of $500 per unit and batch-level costs of $15,000. Premium Co. also incurred $20,000 of product-level costs to design the bench and $200,000 of facility-level costs. Based on the differential revenues and costs, Premium Co. should ______ the special order.

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ayokenny2001 ayokenny2001 · Answer 1 · 2021-03-04T01:53:01+01:00

Answer:

See below

Explanation:

Customer's cost = $700 × 100 units = $70,000

Normal selling price = $850 × 100 units = $85,000

Premium Co's cost = ($500 × 100 units) + $15,000 + ($20,000 × 100 units) + $200,000

= $50,000 + $15,000 + $2,000,000 + $200,000

= $2,265,000

The differential cost(customer offering) is therefore

= $2,265,000 - $70,000

= $2,195,000

The differential cost(selling) is

= $2,265,000 - $85,000

= $2,180,000

Premium Co. should by the order.

PiaDeveau PiaDeveau · Answer 2 · 2022-03-02T06:32:28+01:00

Yes, premium co. should accept the order because it will increase profit by $5,000".

Computation:

Additional revenue = [$700][100]

Additional revenue = $70,000

Cost of special order = [(500)(100) + (15000)]

Cost of special order = 50000 + 15000

Cost of special order = 65,000

Additional profit = 70,000 - 65,000

Additional profit = $5,000

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