Perfect Time Company manufactures and sells watches for $36 each. Value Products

Question

Perfect Time Company manufactures and sells watches for $36 each. Value Products Company has offered Perfect Time $16 per watch for a one time order of 1,000 watches. The total manufacturing cost per watch, using standard absorption costing, is $24 per unit, and consists of variable costs of $18 per watch and fixed overhead costs of $6 per watch. Assume that Perfect Time has excess capacity and that the special order would not adversely impact regular sales. What is the change in operating income that would result from accepting the special sales order?

Explanation / Answer

What is the change in operating income that would result from accepting the special sales order? Ans) Due to Special order, the perfect Time Company net operating income will reduce $2000

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