Answer (D) is correct . Incremental (relevant) costs include the variable costs of $100 ($40 direct materials + $30 direct labor + $24 variable overhead + $6 variable selling costs). Furthermore, if the company does not have idle capacity, the unit price must cover the opportunity costs as well as the variable costs. Given that the alternative use will generate a $20,000 contribution, the 1,000 special-order units will have to generate at least $20 per unit ($20,000 ¡Â 1,000 units) above their variable costs, a total of $120 per unit. Answer (A) is incorrect because The amount of $200 is based on a $20 increment over the total cost on an absorption costing basis. Answer (B) is incorrect because The amount of $180 is the total absorption cost. Answer (C) is incorrect because The amount of $140 is based on a $20 increment over the operating margin.
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