Tullius Corporation has received a request for a special order of 8,800 units of
ID: 2397706 • Letter: T
Question
Tullius Corporation has received a request for a special order of 8,800 units of product C64 for $45.70 each. The normal selling price of this product is $50.80 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product C64 is computed as follows:
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 $5.40 per unit and that would require a one-time investment of $45,200 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 the incremental net operating income of accepting the special order.
Tullius Corporation has received a request for a special order of 8,800 units of product C64 for $45.70 each. The normal selling price of this product is $50.80 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product C64 is computed as follows:
Explanation / Answer
Answer
Additional Sale from Offer
Units
per unit
Amount
Sales revenue
8800
$ 45.70
$ 4,02,160.00
Direct materials
8800
$ 16.50
$ 1,45,200.00
Direct Labor
8800
$ 5.80
$ 51,040.00
Variable manufacturing overhead
8800
$ 3.00
$ 26,400.00
Additional variable cost
8800
$ 5.40
$ 47,520.00
Total Variable cost
8800
$ 30.70
$ 2,70,160.00
Contribution margin
800
$ 15.00
$ 1,32,000.00
Fixed Cost of Investments
$ 45,200.00
Additional Net Income from offer acceptance
$ 86,800.00
Additional Sale from Offer
Units
per unit
Amount
Sales revenue
8800
$ 45.70
$ 4,02,160.00
Direct materials
8800
$ 16.50
$ 1,45,200.00
Direct Labor
8800
$ 5.80
$ 51,040.00
Variable manufacturing overhead
8800
$ 3.00
$ 26,400.00
Additional variable cost
8800
$ 5.40
$ 47,520.00
Total Variable cost
8800
$ 30.70
$ 2,70,160.00
Contribution margin
800
$ 15.00
$ 1,32,000.00
Fixed Cost of Investments
$ 45,200.00
Additional Net Income from offer acceptance
$ 86,800.00
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