Samson Incorporated provided the following information regarding its only? produ

Question

Samson Incorporated provided the following information regarding its only? product: Sale price per unit ?$50.00 Direct materials used ?$160,000 Direct labor incurred ?$185,000 Variable manufacturing overhead ?$120,000 Variable selling and administrative expenses ?$70,000 Fixed manufacturing overhead ?$65,000 Fixed selling and administrative expenses ?$12,000 Units produced and sold ?20,000 Assume no beginning inventory Assuming there is excess? capacity, what would be the effect on operating income of accepting a special order for? 5,000 units at a sale price of? $40 per? product? (NOTE: Assume regular sales are not affected by the special? order.)

Explanation / Answer

Per unit Total 5000 units Incremental revenue 40 200000 Incremental costs: Variable costs: Direct materials 8 40000 Direct labor 9.25 46250 Variable manufacturing overhead 6 30000 Variable selling and administrative expenses 3.5 17500 Total Incremental costs 133750 Incremental net operating income(loss) 66250 Profit would increase by $66250

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