MA69 Problem: Relevant Costing – Special Orders - CBA Inc.

MA69 Problem: Relevant Costing – Special Orders - CBA Inc.

CBA Inc., a manufacturer, has received a special request for 1,000 units of its’ product, widgets,at a price of $52.50 per unit. The normal selling price for widgets is $60.00 per unit. CBA Inc.’sannual capacity is 25,000 units, and its current sales are 22,000 units per annum. To analyze thisspecial order, Jim Blum, the sales manager, gathered the following budgeted information:Direct materials per unit $2.10Direct labour per unit $1.75Variable overhead per unit $0.96Fixed manufacturing overhead per unit $1.10Variable selling and administration per unit $10.96The variable selling and administration costs per unit represent commissions, and would not beincurred on this order.Required:1. Should CBA Inc. accept this special order?2. Assume CBA Inc.’s annual sales are 25,000 units. Should CBA Inc. accept this specialorder?