Business – 5.4 Costs – Approaches to costing | e-Consult
5.4 Costs – Approaches to costing (1 questions)
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First calculate the contribution per unit for Product B:
- Sales price per unit (special order) = £35
- Variable cost per unit = £25
- Contribution per unit = £35 – £25 = £10
Contribution from the special order = 200 units × £10 = £2,000.
Since fixed overhead is a period cost and will be incurred regardless of the order, it does not affect the decision. The order adds a positive contribution of £2,000, therefore the company should accept the special order.