Reference no: EM132510049

Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 21,000 units of one of its most popular products. Grant currently manufactures 42,000 units of this product in its Loveland, Ohio, plant. The plant is operating at 50% capacity. There will be no marketing costs on the special order. The sales manager of Grant wants to set the bid at $11 because she is sure that Grant will get the business at that price. Others on the executive committee of the firm object, saying that Grant would lose money on the special order at that price.

Units                                         42,000              63,000

Manufacturing costs:

Direct materials                            $147,000     $220,500

Direct labor                               189,000   283,500

Factory overhead                    210,000    252,000

Total manufacturing costs       $546,000     $756,000

Unit cost           $13               $12

Required

Question 1: What is the relevant cost per unit? What do you think the minimum short-term bid price per unit should be? What would be the impact on short-term operating income if the order is accepted at the price recommended by the sales manager?

Question 2: What would the total opportunity cost be if by accepting the special order the company lost sales of 6,000 units to its regular customers? Assume the preceding facts plus a normal selling price of $24 per unit.