Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 20,000 units of one of its most popular products. Grant currently manufactures 40,000 units of this product in its Loveland, Ohio, plant. The plant is operating at 50% capacity. There will be no marketing costs on the special order. The sales manager of Grant wants to set the bid at $9 because she is sure that Grant will get the business at that price. Others on the executive committee of the firm object, saying that Grant would lose money on the special order at that price.
Units40,000 60,000 Manufacturing costs: Direct materials$80,000 $120,000 Direct labor120,000 180,000 Factory overhead240,000 300,000 Total manufacturing costs$440,000 $600,000 Unit cost$11 $10
Required
2.
Calculate the relevant costs per unit and the bid price. Provide the change in short term operating income.
4.
What would the total opportunity cost be if by accepting the special order the company lost sales of 5,000 units to its regular customers? Assume the above facts plus a normal selling price of $20 per unit.