Your Company produces a single product. The cost of producing and selling a sing

Question

Your Company produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows:

The normal selling price of the product is $91.60 per unit.
An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.00 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Required:
a. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $81.90 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

The solution with supporting calculations must be on one page per case

Explanation / Answer

per unit for 3000 units Selling price 81.9 245700 Direct Material 53.6 160800 Direct Labor 5.3 15900 Variable manufacturing overhead 1.4 4200 Vasriable Selling and administrative expense 0.6 1800 Total variable cost 60.9 182700 Contribution = selling price - variable cost 21 63000 Since there is no change in the fixed cost , the value obtained as contribution is the amount by which the net operating income of the company would increase in the month Hence $ 63000 is the value by which the net operating income will increase in the month Note : The value of variable cost per unit has been taken from comments posted

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