Benson Company manufactures a personal computer designed for use in schools and markets it under its own label. Benson has the capacity to produce 41,000 units a year but is currently producing and selling only 12,000 units a year. The computer's normal selling price is $1,740 per unit with no volume discounts. The unit-level costs of the computer's production are $590 for direct materials, $220 for direct labor, and $160 for indirect unit-level manufacturing costs. The total product - and facility-level costs incurred by Benson during the year are expected to be $2,160,000 and $801,000, respectively. Assume that Benson receives a special order to produce and sell 3,130 computers at $1,260 each.

Should Benson accept or reject the special order?

Question

Jaelyn Lam

Business

28 September, 07:59

Benson Company manufactures a personal computer designed for use in schools and markets it under its own label. Benson has the capacity to produce 41,000 units a year but is currently producing and selling only 12,000 units a year. The computer's normal selling price is $1,740 per unit with no volume discounts. The unit-level costs of the computer's production are $590 for direct materials, $220 for direct labor, and $160 for indirect unit-level manufacturing costs. The total product - and facility-level costs incurred by Benson during the year are expected to be $2,160,000 and $801,000, respectively. Assume that Benson receives a special order to produce and sell 3,130 computers at $1,260 each.

Should Benson accept or reject the special order?

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Answers (1)

Know the Answer?

Cohen Warner · Answer 1

Effect on income = $907,700

Explanation:

Giving the following information:

Benson can produce 41,000 units a year but is currently producing and selling only 12,000 units a year. The unit-level costs of the computer's production are $590 for direct materials, $220 for direct labor, and $160 for indirect unit-level manufacturing costs. Assume that Benson receives a special order to produce and sell 3,130 computers at $1,260 each.

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

Unitary cost = 590 + 220 + 160 = 970

Effect on income = (1260 - 970) * 3,130 = $907,700