Tunnel Incorporated provided the following information regarding its single prod
ID: 2430470 • Letter: T
Question
Tunnel Incorporated provided the following information regarding its single product: Direct materials used Direct labor incurred Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $210,000 $440,000 $130,000 100,000 $70,000 $20,000 The regular selling price for the product is $80. The annual quantity of units produced and sold is 43,000 units (the costs above relate to the 43,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory What would be the effect on operating income of accepting a special order for 5,000 units at a sale price of $56 per product? (Round any intermediary calculations to the naarest cant.) OA. Decrease by $181,150 O B. Decrease by $378,850 O C. Increase by $181,150 O D. Increase by $378,850Explanation / Answer
Answers
Working
Total Variable cost
1
Direct Material
$ 210,000.00
2
Direct Labor
$ 440,000.00
3
Variable manufacturing overhead
$ 130,000.00
4
Variable selling & admin expenses
$ 70,000.00
A = 1+2+3+4
TOTAL Variable Cost
$ 850,000.00
B
No. of units
43,000
C=A/B
Variable cost per unit
$ 19.77
D
Sale price per unit for special order
$ 56.00
E=D-C
Contribution margin per unit of special order
$ 36.23
F
No. of units in special order
5,000
G = E x F
Net Income will increase by amount of contribution margin from special order
$ 181,150.00
Correct answer
Option 'C': $ 181,150
Working
Total Variable cost
1
Direct Material
$ 210,000.00
2
Direct Labor
$ 440,000.00
3
Variable manufacturing overhead
$ 130,000.00
4
Variable selling & admin expenses
$ 70,000.00
A = 1+2+3+4
TOTAL Variable Cost
$ 850,000.00
B
No. of units
43,000
C=A/B
Variable cost per unit
$ 19.77
D
Sale price per unit for special order
$ 56.00
E=D-C
Contribution margin per unit of special order
$ 36.23
F
No. of units in special order
5,000
G = E x F
Net Income will increase by amount of contribution margin from special order
$ 181,150.00
Correct answer
Option 'C': $ 181,150
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