A customer has requested that Inga Corporation fill a special order for 3,000 un
ID: 2375745 • Letter: A
Question
A customer has requested that Inga Corporation fill a special order for 3,000 units of product K81 for $35 a unit. While the product would be modified slightly for the special order, product K81's normal unit product cost is $30.90:
10.60
$30.90
Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product K81 that would increase the variable manufacturing costs by $2.20 per unit and that would require an investment of $11,000 in special molds that would have no salvage value.
This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:
Fillip Corporation makes 4,400 units of part U13 each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at this level of activity:
An outside supplier has offered to make and sell the part to the company for $23.60 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $3,200 of these allocated general overhead costs would be avoided. In addition, the space used to produce part U13 would be used to make more of one of the company's other products, generating an additional segment margin of $13,400 per year for that product.
What would be the impact on the company's overall net operating income of buying part U13 from the outside supplier?
10.60
Unit product cost$30.90
Explanation / Answer
1)
SPECIAL ORDER = 3000 UNITS
TOTAL VARIBLE COST = 22.5
OTHER COST = 11000
TOTAL COST = 22.5*3000 + 11000 = 78500
PROFIT = 105000-78500 = 26500
2) MAKING TRHE PRODUCT
TOTAL COST = 170280
BUYING THE PRODUCT
PURCHASE COST = 23.6*4400 = 103840
OTHER ADDITIONAL REVENUE =13400
DEPRICIATION = 37840
ALLOCATED OVERHEADS= 27600
TOTAL COST = 155880
PROFIT WITH BUYING DECISION = 14400
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