Chapter 11 problem 18:.

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Chapter 11 problem 18:Solution 1: BSale price of special order per pair= $6Variable manufacturing cost per pair= $4.5Contribution per pair= sale price – variable manufacturing cost= $6 - $4.5= $1.5Total contribution from 20000 pairs= $1.5 x 20000 =$30000If special order will be accepted:Operating income will increase by $30000Solution 2: BRelevant cost for manufacturing part no.498 for 20000 units:Direct material= $6 x 20000 = $120000Direct manufacturing labour= $30 x 20000 = $600000Variable manufacturing overhead= $12 x 20000 = $240000Avoidable fixed overhead= $9 x 20000 = $180000Total relevant manufacturing cost= $120000+$600000+$240000+$180000= $1140000Overall saving required= $25000Total cost of buying part no.498= $60 x 20000 = $1200000Amount of relevant cost that would have to be saved by released facilities:= total buying cost – (total relevant manufacturing cost - saving required)= $1200000 – ($1140000 - $25000)= $1200000 - $1115000=$85000
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