Sunny Days Products manufactures high end decorative pieces for home and office
ID: 2531567 • Letter: S
Question
Sunny Days Products manufactures high end decorative pieces for home and office use. Sunny Days has received a request for a special order of 9,000 units of product AA1 for $45.90 each. The normal selling price of this product is $51.00 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product AA1 is computed as follows:
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 some modifications made to product AA1 that would increase the variable costs by $5.60 per unit and that would require a one-time investment of $45,400 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order.
Determine the effect on the company's the incremental net operating income of accepting the special order. (Omit the "$" sign in your response.)
Sunny Days Products manufactures high end decorative pieces for home and office use. Sunny Days has received a request for a special order of 9,000 units of product AA1 for $45.90 each. The normal selling price of this product is $51.00 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product AA1 is computed as follows:
Explanation / Answer
Per unit Total 9000 units Incremental revenue 45.9 413100 Incremental costs: Variable costs: Direct materials 16.7 150300 Direct labor 6 54000 Variable manufacturing overhead 3.2 28800 Modifications cost 5.6 50400 Total variable cost 31.5 283500 Fixed costs: Purchase of special tool 45400 Total Incremental costs 328900 Incremental net operating income(loss) 84200
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