Business – 5.4 Costs – Uses of cost information | e-Consult

Model Answer:

1. Determine the contribution per unit for the special order:

   • Selling price (special order) = $45
   • Variable cost per unit = $30
   • Contribution per unit = \$45 – \$30 = $15

2. Calculate total contribution from the order:

   • Total contribution = \$15 × 500 = \$7,500

3. Fixed costs are unchanged because the order does not affect the company’s existing capacity or overhead commitments.
4. Decision: Since the order generates a positive contribution of $7,500 and does not increase fixed costs, the company should accept the special order.