Custom Metal Works received an offer from a big-box retail company to purchase 3,000 metal...
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Accounting
Custom Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $220 each. Custom Metal Works accountants determine that the following costs apply to the tables:
Direct material $125
Direct labor $50
Manufacturing overhead $70
Total $245
Of the $70 of overhead, $14 is variable and $56 relates to fixed costs. The $56 of fixed overhead is allocated as $1.12 per direct labor dollar.
Explain why managers who focus on reported cost per unit may be inclined to turn down the order.
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