3. Tullius for $50.00 cach. The Corporation has received a request for a special

Question

3. Tullius for $50.00 cach. The Corporation has received a request for a special order of 8,000 units of product C64 need to be modified slightly for the customer. The normal unit product cost of product C64 is computed as follows: normal selling price of this product is $$3.25 each, but the units would Direct materials.... $18.10 Direct labob.ude Variable manufacturing overhead. 7.40 5.20 Unit product cost... ...35.50 Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product C64 that would increase the variable costs by $5.00 per unit and that would require a one-time investment of $43,000 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 for producing the special order. Determine the effect on the company's total net pperating income of accepting the special order. Show your work!

Explanation / Answer

3. Tullius Corporation

The company's total net operating income will increase by $71400 by accepting the special order.

Note: Fixed manufacturing overhead is not considered since it remains unaffected by the special order and the company has spare capacity to use for producing the special order.

Per unit $ Selling price per unit $ 50.00 Less: Variable costs Direct materials 18.10 Direct labor 7.40 Variable manufacturing overhead 5.20 Cost of modifications 5.00 Total variable costs per unit $ 35.70 Contribution per unit $ 14.30 Number of units of special order 8000 Total contribution on special order $ 114400 Less: Cost of special molds 43000 Profit on special order $ 71400

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