1) Emmett Enterprises received a special order for 300 units of its product at a

Question

1) Emmett Enterprises received a special order for 300 units of its product at a special price of $250 per unit. The buyer has also requested an upgrade in the quality of direct materials which will increase direct material costs by $10 per unit and required a new tool that has a one-time cost of $10,000. Sanchez Enterprises has the capacity to manufacture this product without impacting its normal production. The product normally sells for $300 per unit and has the following per unit manufacturing costs:

Direct Materials $ 75

Direct Labor 50

Variable Manufacturing Overhead 35

Fixed Manufacturing Overhead 70

Should Sanchez Enterprises accept the special order? Support your answer by showing your calculations by determining how much Sanchez Enterprises’ income will change if they accept the special order?

Explanation / Answer

Incremental revenue 75000 =300*250 Incremental costs: Direct Materials 25500 =300*85 Direct Labor 15000 =300*50 Variable Manufacturing Overhead 10500 =300*35 New tool 10000 Total Incremental costs 61000 Net operating income 14000 Yes, accept the special order, income will increase by $14000

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.