Reference no: EM133156350

Question - Alicee is a manufacturing company which produces and sells a single product (a protective vest) and has a practical capacity of 120,000 units per annum. The cost structure of the product manufactured is as shown below:

Direct Material cost: $8 per unit.

Direct labour cost: $8 per unit (subject to a minimum of $56,000 per month).

Variable manufacturing overheads: $3 per unit.

Fixed manufacturing overheads: $168,750 per annum.

Other factory overheads: $48,000 per annum at 60% capacity. This increases by $6,000 per annum for increase of every 10% of the capacity utilisation.

The capacity utilisation for the next year is estimated at 60% for the first two months, 75% for the next 6 months and 80% for the remaining part of the year.

(a) If the company is planning to achieve a profit of 25% on the selling price, calculate the selling price per unit. Assume that there are no opening and closing inventory.

(b) Assume that in the first two months, the company had a special order to produce and sell 1,000 units of the protective vests for each of the first two (2) months. How would you charge the special order? Comment briefly on your treatment of the following items in relation to the special order: Direct labour cost, Fixed manufacturing overheads, and other factory overheads.