Posted: August 31st, 2016

What if the company only paid $225.00 per unit

Differential Analysis-knowing which costs are relevant etc.
Lewis company:
production and sales information for Lewis Company.
Product information
Prod B
Beginning inventory
Units produced
Units sold
Selling price per unit
Variable costs per unit
Direct material
Direct labor
Variable overhead
Variable selling and administrative
Fixed costs
Fixed manufacturing overhead
Fixed selling and administrative
Lewis Company
Absorption Income Statement
For the period ending Dec. 31, 2012
Cost of goods sold
Gross profit (margin)
Selling and administrative expenses
Net income
Lewis Company receives an offer to make a new product for a new customer. The product is called C. Customer wants 1100 units. Product see has the same cost structure as Product B above with three exceptions. The new customer will only pay $245.00 per unit. Direct materials costs will onlu decrease $15 per unit and Lewis does not have to incur any variable selling and admin expenses.
Make a list of expenses and amounts that are relevent for this decision. How much with the sale of this product contributes to the profitability of Lewis?
What if the company only paid $225.00 per unit. How does that change the contribution towards profitability? If you were the manager would you accept this order? What cosiderations other than financial would affect the decision?

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