A customer has requested that Lewelling Corporation fill a special order for 2,1

Question

A customer has requested that Lewelling Corporation fill a special order for 2,100 units of product S47 for $26 a unit. While the product would be modified slightly for the special order, product S47s normal unit product cost is $19.20: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost 5.70 3.00 2.80 7.70 $19.20 Assume that 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 S47 that would increase the variable costs by $1.30 per unit and that would require an investment of $11,000.00 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. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be: Multiple Choice $16,720 ($10,700) $11,200 ($1,900)

Explanation / Answer

Per unit Total 2100 units Incremental revenue 26 54600 Incremental costs: Variable costs: Direct materials 5.7 11970 Direct labor 3 6300 Variable manufacturing overhead 2.8 5880 Increase in variable cost 1.3 2730 Total variable cost 12.8 26880 Fixed costs: Purchase of special tool 11000 Total Incremental costs 37880 Incremental net operating income(loss) 16720 Option 1 is correct

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