The Melrose Corporetion produces a single product Product C. Melrose has the cop

ID: 2560768 • Letter: T

Question

The Melrose Corporetion produces a single product Product C. Melrose has the copacity to produce 100000 units of Product C each year If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows: Direct materlels Direct labor Vorioble manufacturing overheod Fkod manufacturing overhced Veriable selling expense Foed selling expense 3050 s 23.00 $ 1750 $ 2150 $15.00 9.50 The regular selling price of one unit of Product C is S136.00. A special order has been received by Melrose from Moore Corporation to purchese 5,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduce y 75%. Total fixed manufecturing overhes ndhed seling expenses wo e una ected except thet N erase wil need to purchase s sp ce ized machine ter grave the cre ame ar cac un or roduct Cmt especi der The mac new cost $9,600 and will have no use after the special order is filled Assume that direct lahor is a veriable cost Assume Melrose expects to sell 90.000 units of Product C to regular customers next year. if Moore compony offers to buy the 5,000 special units at S12600 per unit, the effect of accepting the special onder on Melrose's net operating income for next year will be O $39,150 increase $101,250 increase O S51.150 decreese O $246,650 increase

Explanation / Answer

Solution: $246,650 increase

Working:

Incremental revenue: 5000 units *126

630,000

Less incremental costs

Direct materials (5000*30.50)

152500

Direct labor (5000*23)

115000

Variable manufacturing overhead (5000*17.50)

87500

Variable selling expenses (5000*0.25*15)

18,750

Special machine

9,600

Total incremental cost

383,350

Incremental net operating income

246,650