Grant Industries, a manufacturer of electronic parts, has recently received an invitation to bid on a special order for 23,500 units of one of its most popular products. Grant currently manufactures 47,000 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 $11 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. Units 47,000 70,500
Manufacturing costs:
Direct materials $117,500 $ 176,250
Direct labor 164,500 246,750
Factory overhead 329,000 423,000
Total manufacturing costs $611,000 $ 846,000
Unit cost $ 13 $ 12
Calculate the relevant costs per unit and the bid price.
Relevant Cost per Unit
Bid price should be any price above
What would the total opportunity cost be if by accepting the special order the company lost sales of 6,500 units to its regular customers? Assume the above facts plus a normal selling price of $24 per unit.
Total opportunity cost