A customer has requested that Daleske Corporation ill a special order for 2,000

Question

A customer has requested that Daleske Corporation ill a special order for 2,000 units of product D84 for $20.30 a unit. While the product would be modified slightly or the special order, product D84's normal unit product cost is $18.50:

Direct Materials...$6.80

Direct Labor...3.40

Variable Manufacturing Overhead...7.00

Fixed Maufacturing Overhead...1.30

Unit Product Cost...$18.50

Direct labor is a variable cost. The special order would have no eect on the company's total fixed manuacturing overhead costs. The customer would like modifications made product D84 that would increase the variable costs by $2.50 per unit and that would require an investment of $7000 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 or producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

A) ($14900)

B) ($5800)

C) $3600

D) ($8400)

Explanation / Answer

Answer is B) ($5,800)

Sales (2,000*$20.30) $ 40,600 Less: Expenses Direct materials (2,000*$6.80) $ 13,600 Direct labor (2,000*$3.40) $    6,800 Variable manufacturing overhead (2,000*($7+$2.50)) $ 19,000 Special molding equipment $    7,000 Total expenses $ 46,400 Decrease in net operating income $ (5,800)

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