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Waterloo Co
Waterloo Co. sells product P-14 at a price of $46 a unit. The per-unit cost data are direct materials $15, direct labour $10, and overhead $16 (75% variable). Waterloo Co. has sufficient capacity to accept a special order for 39,100 units, but at a discount of 25% from the regular price. Selling costs associated with this order would be $3 per unit. Determine whether Waterloo Co. should accept the special order. (Enter loss with a negative sign preceding the number, e.g. -15,000 or parenthesis, e.g. (15,000).)
Expert Solution
Answer:
Analysis of special order
| Sales (39,100 x 34.5 | 1,348,950 |
| Expenses : | |
| Direct material (39,100 x 15) | -586,500 |
| Direct labor (39,100 x 10) | -391,000 |
| Variable overhead (39,100 x 12) | -469,200 |
| Selling expense (39,100 x 3) | -117,300 |
| Net loss | - $215,050 |
Selling price per unit in special order = 46 - 46 x 25%
= 46 - 11.5
= $34.5
Special order should not be accepted since it will provide a loss of $215,050
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