Wehrs Corporation has received a request for a special order of 8,500 units of p

Question

Wehrs Corporation has received a request for a special order of 8,500 units of product K19 for $45.40 each. The normal selling price of this product is $50.50 each, but the units would need to be modified slightly for the customer The normal unit product cost of product K19 is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost $16.20 5.50 2.70 5.60 $30.00 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 some modifications made to product K19 that would increase the variable costs by $5.10 per unit and that would require a one-time investment of $44,900 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 Required Determine the effect on the company's total net operating income of accepting the special order.

Explanation / Answer

Incremental analysis :

Incremental revenue (8500*45.40) 385900 Incremental cost Direct material 137700 Direct labour 46750 Variable manufacturing overhead 22950 Additional variable cost 43350 Special molds 44900 Total incremental cost 295650 Incremental profit (loss) 90250

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