Problem #3 West Star Company manufactures and sells computer monitors at $200 ea

Question

Problem #3
West Star Company manufactures and sells computer monitors at $200 each. The following is the cost information for the manufacture and sale of one monitor, given the normal manufacture and sales level of 5000 is:

Direct materials $48 per unit
Direct labor 64 per unit
Variable overhead 36 per unit
Variable selling and admin. expenses 12 per unit
Fixed manufacturing overhead $125,000, in total

West Star actually has the capacity to produce 7000 monitors, but demand has not been high enough to do so. West Star received a special order for 1500 monitors at a sales price of $175 per unit. West Star will pay a reduced sales commission on the special order, reducing variable selling and administrative expenses from $12 per unit to $8 per unit. What is the net effect of the special order on the company’s profit? Show your work.

Explanation / Answer

                              Existing    Special Order   Total
Sold units                 5,000        1,500             6,500
Sales Revenue    $1,000,000    $262,500       $1,262,500
Variable costs
(64+36+12)           $560,000
(64+36+8)                               $162,000         $722,000
Contribution        $440,000      $100,500         $540,500
Less:Fixed MOH $125,000                             $125,000
Net Effect         $315,000                           $415,000

The resultant profit will increase from $315,000 to $415,000 if special order for 1,500 monitors is accepted @ $175 per monitor.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.