A company produces water buckets with the following costs per bucket:
Direct labor = $2
Direct material = $5
Fixed manufacturing = $3.50
Variable manufacturing = $2.50
The water buckets are usually sold for $15. However, the company received a special order for
50,000 water buckets at $11 each.
Assuming there is adequate manufacturing capacity and all other variables are constant, what is the
relevant cost per unit to consider when deciding whether to accept this special order at the reduced
price?
B
CORRECT ANSWER LETTER A
In my opinion, relevant cost is $9.50 instead of $10.5 as only variable cost is relevant cost for decisions. Fixed cost will remain same due to available production capacity.