GreenCorp. makes lawn and garden equipment. Lawn Care put in a special order for

Question

GreenCorp. makes lawn and garden equipment. Lawn Care put in a special order for 20,000 weed eaters for $15 each. Normally, Green Corp sells the weed eaters for $20 each. In addition, Lawn Care wants their own logo on the weed eaters. Cost information is as follows:

Direct Materials $8.00

Direct Labor 3.00

Variable overhead 2.00

Fixed overhead 3.50

To affix the Lawn Care logo, Green Corp will have to lease a special machine for three months (the time it will take to make the order) at a cost of $2,000 per month.

If Green Corp accepts the special order, what will be the impact on operating income?

Explanation / Answer

Green Corporation Special Order Normal Order Weed Eater $        20,000.00 $      20,000.00 Selling Price $     300,000.00 $   400,000.00 Cost Price Direct Material $     160,000.00 $   160,000.00 Direct Labour $        60,000.00 $      60,000.00 Variable Overhead $        40,000.00 $      40,000.00 Fixed Overhead $        70,000.00 $      70,000.00 Lease Charges $          6,000.00 $                     -   Total Cost $     336,000.00 $   330,000.00 Operating Profit or Loss $     (36,000.00) $      70,000.00 If Green Corporation accept the order it will have operting loss of $36000.

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