Stangle Company manufactures ties. When 28,000 ties are produced, the costs per

Question

Stangle Company manufactures ties. When 28,000 ties are produced, the costs per unit are: Direct materials $0.60 Direct manufacturing labor 3.00 Variable manufacturing overhead 1.20 Fixed manufacturing overhead 1.60 Variable selling 0.80 Fixed selling 1.13 The ties normally sell for $22 each. The company has received a special order for 2,000 ties at $10.00 per tie. The company has excess capacity. Required: Compute the amount by which the operating income would change if the order were accepted.

Explanation / Answer

The revenue from the ties would be: 10*2,000 = $20,000. They would only incur variable costs: (.60+3.00+1.20+.80)*2,000 = $11,200. The operating income would increase by 20,000

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