Integrated Masters Inc IMI is presently operating at 80 of c

Integrated Masters, Inc. (IMI), is presently operating at 80% of capacity and manufacturing 121,000 units of a patented electronic component. The cost structure of the component is as follows:    
  

  

An Italian firm has offered to purchase 20,100 of the components at a price of $24.5 per unit, FOB IMI\'s plant. The normal selling price is $32.3 per component. This special order will not affect any of IMI\'s \"normal\" business. Management calculated that the cost per component is $23.3, so it is reluctant to accept this special order.

Required:

a. Calculate the fixed overhead per unit? (Round your answer to 2 decimal places.)

b. Is the cost calculation appropriate?

c. Should the offer from the Italian firm be accepted?

Raw materials	$	6.10	per unit
Direct labor		6.10	per unit
Variable overhead		8.10	per unit
Fixed overhead	$	363,000	per year

Solution

a Fixed overhead per unit = 363000/121000= $3 per unit b NO, the cost calculation is not appropriate, as fixed overhead per unit should not be included in cost calculation. c Total relevant cost = 6.1+6.1+8.1 = $20.3 The offer should be accepted as relevant cost is less than order price of $24.5