Ries Corporation has received a request for a special order of 8,800 units of pr

Question

Ries Corporation has received a request for a special order of 8,800 units of product R34 for $34.60 each. The normal selling price of this product is $36.10 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product R34 is computed as follows:

  Direct materials

10.70

  Direct labor

1.50

  Variable manufacturing overhead

6.60

  Fixed manufacturing overhead

2.00

  Unit product cost

20.80

Direct labor is a variable cost. The special order would have no effect on the company%u2019s total fixed manufacturing overhead costs. The customer would like some modifications made to product R34 that would increase the variable costs by $5.80 per unit and that would require a one-time investment of $34,000 in special molds that would have no salvage value. This special order would have no effect on the company%u2019s other sales. The company has ample spare capacity for producing the special order.

Ries Corporation has received a request for a special order of 8,800 units of product R34 for $34.60 each. The normal selling price of this product is $36.10 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product R34 is computed as follows:

Explanation / Answer

Hi,

Please find the answer as follows:

Incremental Income =54000

Thanks.

Sales 304480 DM 94160 DL 13200 VMO 58080 Additional Variable Costs 51040 Additional Investment 34000 Net Income 54000

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