Reference no: EM132813831

Question - KitchenDoor Industries produces latches for cabinet doors. They typically sell their latches to cabinet manufacturers who then use them in their cabinet construction. The cost of a latch is given below:

Direct materials $2.50

Direct labor $1.60

Variable overhead $1.20

Fixed overhead $2.00

Each unit sells for $10.00.

Currently, KitchenDoor is operating at 490,000 units and has capacity to produce 500,000 units.

KitchenDoor has received a special order for 20,000 units of an upgraded latch from a home improvement store. The special order would require materials of $3.00 per unit (direct labor costs and variable overhead costs would be the same per unit; fixed overhead would not be affected). Clearly, 10,000 units of regular sales would be lost if the special order is accepted.

Required -

(1) Compute the opportunity cost of accepting this order.

(2) Compute the minimum acceptable price for this order.