fill a special order for 2,400 units of product K81 for $29 a unit. While the pr
ID: 2491365 • Letter: F
Question
fill a special order for 2,400 units of product K81 for $29 a unit. While the product would be modified slightly for the special order, product K81's normal unit product cost is $23.10: Direct materials $ 6.00 Direct labor 6.00 Variable manufacturing overhead 3.10 Fixed manufacturing overhead 8.00 Unit product cost $23.10 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 modifications made to product K81 that would increase the variable costs by $1.60 per unit and that would require an investment of $14,000 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. If the special order is accepted, the company's overall net operating income would increase (decrease) by: $(2,200) $(13,700) $15,520 $14,200
Explanation / Answer
For Special Order
Relevant Variable cost per Unit = Direct materials + Direct labor + Variable manufacturing overhead + increase the variable costs
Relevant Variable cost per Unit = 6+6+3.1+1.6
Relevant Variable cost per Unit = 16.70
Overall net operating income would increase = (sell Price per unit - Relevant Variable cost per Unit)* No of Unit - Discritionary Fixed cost
Overall net operating income would increase = (29-16.70)*2400 - 14000
Overall net operating income would increase = $ 15520
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