Adelaide Industries Ltd manufactures a product with the following costs per unit

Question

Adelaide Industries Ltd manufactures a product with the following costs per unit at the expected production of 30,000 units: $ 5 15 Direct materials Direct labour Variable manufacturing overheads Fixed manufacturing overheads The company has the capacity to produce 60,000 units. The product regularly sells for $45. A wholesaler has offered to pay $40 each for 2,000 units If the special order is accepted, the effect on Adelaide's operating income would be a Select one: $24,000 increase. $34,000 increase. $10,000 decrease. $12,000 decrease

Explanation / Answer

Answer

$24,000 increase

Explanation :In case of special order , regula fixed costs are not to be cosidered.

Cost per unit of special order = Direct Material + Direct Labour + Varible manufacturing o/h

= $5 + $15 + $8 = $28

Selling per unit of special order = $40

Impact on operating income due to special order = ($40 -  $28) * 2,000 units = $24,000 increase

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