Gallerani Corporation has received a request for a special order of 5,500 units
ID: 2410268 • Letter: G
Question
Gallerani Corporation has received a request for a special order of 5,500 units of product A90 for $27.70 each. Product A90's unit product cost is $27.20, determined as follows:
Assume that 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 modifications made to product A90 that would increase the variable costs by $4.00 per unit and that would require an investment of $19,000 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. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:
Multiple Choice
$(85,250)
$(38,250)
$2,750
$9,325
Direct materials $ 2.95 Direct labor 8.25 Variable manufacturing overhead 7.35 Fixed manufacturing overhead 8.65 Unit product cost $ 27.20Explanation / Answer
Per unit Total 5500 units Incremental revenue 27.7 152350 Incremental costs: Direct materials 2.95 16225 Direct labor 8.25 45375 Variable manufacturing overhead 7.35 40425 Increase in variable costs 4 22000 Purchase of special tool 19000 Total Incremental costs 143025 Incremental net operating income(loss) 9325 Option 4 is correct
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