Rippey Corporation manufactures a single product witht he following unit costs f

Question

Rippey Corporation manufactures a single product witht he following unit costs for 5,000 units:

Direct materials: 60
Direct labor: 30
Factory overhead (40% variable): 90
Selling expense (60% variable): 30
Administrative expenses (20% variable) 15
Total per unit: 225

Recently, a company approached Rippey Corporation about buying 1,000 units for $225. Currently, the Models are sold to dealers for $412.50. Rippey's capacity is sufficient to produce the extra 1,000 units. Ne additional selling expenses would be incurred on the special order.

Required:
Should Rippey accept the special order if its goal is to maximize short-run profits?
How much will income be affected if Rippey accepts the special order?

Explanation / Answer

225,000 Sales (1,000*225) -60,000 DM -30,000 DL -36,000 (Variable OH, 90*.4*1000) -3,000 (admin 15*.2*1,000) =96,000 They should accept the special order. Income will increase by $96,000.

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