Question

Helix Company has been approached by a new customer to provide 2,000 units of its regular product at a special price of \(6 per unit. The regular selling price of the product is \)8 per unit. Helix is operating at 75% of its capacity of 10,000 units. Identify whether the following costs are relevant to Helix’s decision as to whether to accept the order at the special selling price. No additional fixed manufacturing overhead will be incurred because of this order. The only additional selling expense on this order will be a \(0.50 per unit shipping cost. There will be no additional administrative expenses because of this order. Place an Xin the appropriate column to identify whether the cost is relevant or irrelevant to accepting this order.

Item Relevant Not Relevant

a. Selling price of \)6.00 per unit

b. Direct materials cost of \(1.00 per unit

c. Direct labor of \)2.00 per unit

d. Variable manufacturing overhead of \(1.50 per unit

e. Fixed manufacturing overhead of \)0.75 per unit

f. Regular selling expenses of \(1.25 per unit

g. Additional selling expenses of \)0.50 per unit

h. Administrative expenses of $0.60 per unit

Short answer

The selling price of a product is the factor that affects the cost of the product.

Step-by-step solution

Definition of the fixed manufacturing overhead

The fixed manufacturing overheads are those overheads that remain fixed every time.

Relevant to the order

1. The selling price is relevant to accepting the order because the selling price is directly related to the order.
2. The direct material cost is directly relevant to the order because the direct material cost is related to the product.
3. The direct labor is relevant to the order because the direct labor is related to the product.
4. The variable manufacturing expense is relevant to the order because the variable manufacturing expense is affected by order of the product and its quantity.
5. The fixed manufacturing overhead isnot relevant to the order because the fixed manufacturing overhead does not affect the order.
6. The regular selling expense is not relevant to the order because the regular selling expense affects the order of the product.
7. The additional selling expense is relevant to the order because the additional selling expense increases as a new product are ordered.
8. The administrative expenses are not relevant to the order because the administrative expense is not related to the product.