PowerDrive, Inc. produces a hard disk drive that sells for $175 per unit. The cost of producing 25,000 drives in the prior year was:
Direct material $625,000
Direct labor 375,000
Variable overhead 125,000
Fixed overhead 1,500,000
Total cost $2,625,000
At the start of the current year, the company received an order for 3,200 drives from a computer company in China. Management of PowerDrive has mixed feelings about the order. On the one hand they welcome the order because they currently have excess capacity. Also, this is the company's first international order. On the other hand, the company in China is willing to pay only $135 per unit.
What will be the effect on profit of accepting the order?© BrainMass Inc. brainmass.com October 25, 2018, 9:32 am ad1c9bdddf
Effect on profit - Special order
Analyze Cost and Role in Decision Making
Analyzing Cost and Its Role in Decision Making
The concept of opportunity cost and examination of how to calculate the cost of alternatives over single and multiple time periods. Analyze cost and its role in the decision-making process by answering the following questions:
? Citing examples, differentiate between opportunity cost, marginal cost, and relevant cost.
? Assess the relationship of marginal benefit and marginal costs. How is marginal benefit measured, and how does it relate to marginal costs?
? What other factors must managers address before making decisions? Why?