A customer has requested that Lewelling Corporation fill a special order for 2,7

Question

A customer has requested that Lewelling Corporation fill a special order for 2,700 units of product S47 for $32 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $22.00 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost $6.30 4.00 3.40 8.30 $22.00 Assume that 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 S47 that would increase the variable costs by $1.90 per unit and that would require an investment of $17,000.00 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. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Explanation / Answer

Per unit Total 2700 units Incremental revenue 32 86400 Incremental costs: Variable costs: Direct materials 6.3 17010 Direct labor 4 10800 Variable manufacturing overhead 3.4 9180 Increased cost 1.9 5130 Total variable cost 15.6 42120 Fixed costs: Purchase of special tool 17000 Total Incremental costs 59120 Incremental net operating income(loss) 27280 Financial advantage = $27280

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