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Cost allocation

Custom metal works received an offer from a big box retailer company to purchase 3000 metal outdoor tables for $200 each, Custom metal works accountants determine that the following costs apply to the tables.

Direct material 100
direct labor 45
Manufacturing overhead 70
total 215

Of the $70 of overhead, $14 is variable and $56 relates for fixed cost. The $56 of fixed overhead is allocated as $1.25 per direct labor dollar.
a. What will the real effect on profit if the order is accepted
b. Explain why managers who focus on reported cost per unit may be inclined to turn down the order.

Solution Preview

Hi,

Please see response to your posting below.

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Variable cost per unit = Direct material + Direct labor + variable manufacturing overhead cost per ...

Solution Summary

Solution shows calculations of incremental profit.

$2.19