please explain in details. The manufacturing company next door produces only one
ID: 2407005 • Letter: P
Question
please explain in details.
The manufacturing company next door produces only one product. The company's normal activity level is 32,000 units per month. The cost data for producing and selling a single unit of this product is shown below:
The normal selling price of the product is $50.50 per unit.
An order has been received from a company over seas for 2,200 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $.40 less per unit on this order than on normal domestic sales.
Direct labor is a variable cost in this company.
Suppose there is sufficient idle capacity to produce the units required by the foreign customer and the special discounted price on the special order is $44.80 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?
$29,700
$(5,940)
$8,580
$(77,440)
some other amount
Direct materials $20.20 Direct labor $8.20 Variable manufacturing overhead $1.20 Fixed manufacturing overhead $10.80 Variable selling & administrative expense $2.10 Fixed selling & administrative expense $6.20Explanation / Answer
A.$29,700
the company's operating net income for the month will increase by $29,700.
the following table shows per unit contribution from special order:
now,
total net operating income will increase by (contribution per unit * number of units under special order)
($13.50*2,200 units) =>$29,700.
note:fixed manufacturing overhead is not considered while evaluating special orders, since fixed costs are unchanged.
sale price $44.80 less: variable costs direct materials (20.20) direct labour (8.20) variable manufacturing overhead (1.20) variable selling and administrative expense (2.10-0.40) (1.70) Contribution per unit $13.50Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.