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what would the opportunity cost be for accepting the order? Would it be the total 60% mark-up $27,000 subtracted by the assigned factory overhead of $13,500?

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Special Order Mobile Solutions Company produces a variety of electric scooters. Management follows a pricing policy of manufacturing cost plus 60 percent. In response to a request from Northern Cycles, LLC, the following price has been developed for an order of 300 scooters (the smallest scooter Mobile Solutions produces: Northern Cycles rejected this price and offered to purchase the 300 scooters at price of $60,000.

Manufacturing Costs:

Diret Materials.......................12,000

Direct Labor.......................... 15,000

Factory Overhead..................18,000

Total.....................................45,000

Mark-up (60%).......................27,000

Selling Price..........................72,000

The following additional information is available:

Mobile Solutions has sufficient excess capacity to produce the scooters.

Factory overhead is applied on the basis of direct labor dollars.

Budgeted factory overhead is $400,000 for the current year.

Of this amount $100,000 is fixed.

Of the $18,000 of factory overhead assigned to Northern Cycles order, only $13,500 is driven by the special order; $4,500 is a fixed cost.

Selling and Administrative expenses are budgeted as follows:

Fixed. $90,000 per year

Variable. $20 per unit manufactured and sold

Questions: a) The president of Mobile Solutions wants to know if he should allow Northern Cycles to have the scooters for $60,000. Determine the effect on profits of accepting Northern Cycles offer.

b) Assume Mobile Solutions is operating at capacity and could sell the 300 scooters at its regular markup

. 1. Determine the opportunity cost of accepting Northern Cycles offer.

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