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

Question

2) 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 Variable Manufacturing Overhead 35 Fixed Manufacturing Overhead 70 50 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 analysis :

Sanchez enterprises should accept the special order because special order increase profit by $14000

Incremental revenue (300*250) 75000 Incremental cost Direct material (300*85) (25500) Direct labour (300*50) (15000) variable manufacturing overhead (300*35) (10500) Additional tool (10000) Total incremental cost (61000) Incremental profit 14000

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