# Chapter 11 Problem 18 Solution Analysis

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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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