1. The Prescott Company produces a light-weight wind breaker with the following per unit costs:
Direct Materials                   $4.00
Direct Labor                         1.00
Variable Overhead             1.75
Fixed Overhead                  2.00
Total Unit Cost                    $8.75
While production capacity for the next year is 200,000 units, Prescott expects to produce only
170,000.
The fixed selling costs total $85,000 per year and variable selling costs are $0.5 for each unit
sold.
The wind breakers usually sell for $12 each.
A customer from outside of Prescott
Solution
Note: Fixed overhead is calculated on total capacity i.e for 2,00,000 unis
2.
1.if prescott Company produces same no. of units i.e 1,70,000 units & sold 20,000 units to
new customer
& balance units of 1,50,000 units to its old customer than there is increase in profit by $
10,000
Hence it can except this proposal