- produces a hard disk drive that sells for $140 per unit. The cost of producing 20,000 drives in the prior year was:
Direct Material
$ 500,000
Direct Labor
$ 300,000
Variable Overhead
$ 100,000
Fixed Cost
$ 1,200,000
Total Cost
$ 2,100,000
At the start of the current year, the company received an order of 2,000 drives from a computer company in china. Management of GK, Inc. has mixed felling about the order. On one hand they welcome the order because they currently have excess capacity. Also, this is company’s first international order. On the other hand, the company in China is only willing to pay $100 per unit.
