Homework: Chapter 8 Score: 0.29 of 1 pt (x) S84 (similar to) Save 1 of 5 (1 comp

Question

Homework: Chapter 8 Score: 0.29 of 1 pt (x) S84 (similar to) Save 1 of 5 (1 complete) HW Score: 5.71%, 0.29 of 5 pts More Info Ease Products manufactures t-shirts. It has the following costs when its production level is 70,000 units (t-shirts): EEB (Click the icon to view the costs.) What will happen to Ease's operating income if it accepts this special order? (Click the icon to view additional information.) The company's relevant range extends to 82,000 units. Ease has received a special order for 7,000 t-shirts at a special price of $47,250 for the entire order. The special order t-shirt would use a fabric that is less expensive than the standard fabric used by Ease, which would allow Ease to save $0.70 per t-shirt in direct Complete the following incremental analysis to determine the impact on Ease's operating income if it accepts this special order. (Rmaterials when manufac dollar. Enter a "0 for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and or o manufacturing this special order. Ease has the excess capacity to manufacture this special order. Its total fixed costs will not be impacted by the special order Total Order Incremental Analysis of Special Sales Order Decision Per Unit (7,000 units) PrintDone Revenue from special order Less variable expense associated with the order Direct materials Direct labor Variable manufacturing overhead Contribution margin Less: Additional fixed expenses associated with the order Data Table Total costs for 70,000 units Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead 210,000 38,500 63,000 170,000 481,500 Enter any number in the edit fields and then click Check Answer part Clear Total manufacturing costs

Explanation / Answer

Note 1: Calculation of cost of direct material used in making one t shirt (Of special order)

A. Cost of direct material used to produce 70,000 t shirts = $210,000

B. No .of t shirts = 70,000

C. Cost of direct material per t shirt (A ÷ B) = $3 per t-shirt

Less : Savings in direct material = (0.70)

cost of direct material used in making one t shirt = $2.30

(Of special order)

Note 2: Calculation of cost of direct labor used in making one t shirt (Of special order)

A. Cost of direct labor used to produce 70,000 t shirts = $38,500

B. No .of t shirts = 70,000

C. Cost of direct labor per t shirt (A ÷ B) = $0.55 per t-shirt

Note 3: Calculation of cost of Variable manufacturing overhead per t-shirt (Of special order)

A. Variable manufacturing overhead for 70,000 t shirts = $63,000

B. No .of t shirts = 70,000

C. Cost of Variable manufacturing overhead per t shirt (A ÷ B) = $0.90 per t-shirt

Per unit Total order (7,000 units) Revenue from special order $6.75 $47,250 Less Variable expenses associated with the order Direct material (Note 1) $2.3 $16,100 (7,000 x $2.3) Direct labor (Note 2) $0.55 $3,850 (7,000 x $0.55) Varaible manufacturing Overhead (Note 3) $0.90 $6,300 (7,000 x 0.90) Contibution margin $3 $21,000 LESS: Additional fixed cost associated with special order Nil Net Income $21,000 Ease's operating income will be increased by $21,000

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