The normal selling price of Daniel Company’s product is $35 per unit. The costs

Question

The normal selling price of Daniel Company’s product is $35 per unit. The costs of production are: direct materials, $6; direct labor, $5; variable overhead, $5; and fixed overhead, $6 (based on normal capacity). The company has received a special order for 12,800 units at a unit sales price of $19. There is ample unused capacity to fill the order and $2 per unit will be incurred for additional packaging. If the order is accepted, operating income will

a. increase by $12,800

b. decrease by $38,400

c. increase by $38,400

d. decrease by $12,800

Explanation / Answer

ANSWER IS A

UNIT COST FOR SPECIAL ORDER = DIRECT MATERIAL + DIRECT LABOR+VARIABLE OVERHEAD+PACKAGING

= 6+5+5+2 = 18 PER UNIT

12800*(19-18) = 12800

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