The following information relates to a product produced by the Creamer Company:
ID: 2530856 • Letter: T
Question
The following information relates to a product produced by the Creamer Company: Direct Materials Direct Labor VOH FOH Unit cost $24 15 30 $87 Fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects its customer demand to only be 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90 each. Variable selling costs cannot be avoided in this offer. What impact will this special order have on Creamer's profit if it accepts the offer?Explanation / Answer
Per unit Total 60000 units Incremental revenue 90 5400000 Incremental costs: Direct materials 24 1440000 Direct labor 15 900000 Variable manufacturing overhead 30 1800000 Variable selling costs 12 720000 Total Incremental costs 81 4860000 Incremental net operating income(loss) 540000 Profit increases by $540000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.