A customer has requested that Gamba Corporation fill a special order for 2,400 u

Question

A customer has requested that Gamba Corporation fill a special order for 2,400 units of product Q41 for $36 a unit. While the product would be modified slightly for the special order, product Q41 normal unit product cost is $17.50: Direct materials $ 4.80 Direct labor 4.00 Variable manufacturing overhead 1.90 Fixed manufacturing overhead 6.80 Unit product cost $17.50 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 Q41 that would increase the variable costs by $1.70 per unit and that would require an investment of $18,000 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: $38,640. $(17,700). $18,200. $(2,200).

Explanation / Answer

Per unit Total 2400 units Incremental revenue 36 86400 Incremental costs: Direct materials 4.8 11520 Direct labor 4 9600 Variable manufacturing overhead 1.9 4560 Increase in variable costs 1.7 4080 Purchase of special tool 18000 Total Incremental costs 47760 Incremental net operating income(loss) 38640 Net operating income would increase by $38640

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