Gracius Manufacturing is approached by a European customer to fulfill a oneminustimeminusonly special order for a product similar to one offered to domestic customers. Gracius Manufacturing has a policy of adding a 20 % markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $ 70 Direct labor 10 Manufacturing overhead 20 Marketing costs 40 Fixed costs: Manufacturing overhead 120 Marketing costs 40 Total costs 300 Markup (20 % of total costs) 60 Estimated selling price $ 360 What is the full cost of the product per unit for Gracius Manufacturing? A. $ 300 B. $ 140 C. $ 80 D. $ 360

Question

Justine Gill

Business

28 December, 22:57

Gracius Manufacturing is approached by a European customer to fulfill a oneminustimeminusonly special order for a product similar to one offered to domestic customers. Gracius Manufacturing has a policy of adding a 20 % markup to full costs and currently has excess capacity. The following per unit data apply for sales to regular customers: Variable costs: Direct materials $ 70 Direct labor 10 Manufacturing overhead 20 Marketing costs 40 Fixed costs: Manufacturing overhead 120 Marketing costs 40 Total costs 300 Markup (20 % of total costs) 60 Estimated selling price $ 360 What is the full cost of the product per unit for Gracius Manufacturing? A. $ 300 B. $ 140 C. $ 80 D. $ 360

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Answers (1)

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Zion Woodard · Answer 1

B. $ 140

Explanation:

As this is a one-time-only the company can consider only their variable cost. This wat, it can offer a competitive price and use their space capacity to generate additional contribution.

The fixed cost are considered in their currnet sales volume thus, these additional sales can increase their contribution if sold only at variable cost plus markup.