Integrated Masters Inc. (IMI) is presently operating at 80% of capacity and manufacturing 116,000 units of a patented electronic component. The cost structure of the component is as follows:
Raw materials $6.10 per unit
Direct labor 6.10 per unit
Variable overhead 8.10 per unit
Fixed overhead $363,000 per year
An Italian firm has offered to purchase 20,100 of the components at a price of $24.5 per unit, FOB IMI's plant. The normal selling price is $32.3 per component. This special order will not affect any of IMI's "normal" business. Management calculated that the cost per component is $23.3, so it is reluctant to accept this special order.
Required:
a. Calculate the fixed overhead per unit?
b. Is the cost calculation appropriate?
c. Should the offer from the Italian firm be accepted?
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