Henderson Corporation has received a request for a special order of 9,100 units

Question

Henderson Corporation has received a request for a special order of 9,100 units of product XYZ for $46.00 each. The normal selling price of this product is $51.10 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product XYZ is computed as follows:

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 some modifications made to product XYZ that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $45,500 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.

Calculate the incremental net operating income or loss from accepting the special order. (Omit the "$" sign in your response. Enter a loss as a negative number.)

Henderson Corporation has received a request for a special order of 9,100 units of product XYZ for $46.00 each. The normal selling price of this product is $51.10 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product XYZ is computed as follows:

Explanation / Answer

Incremental sales = 9100*$46 = $418600

Normal variable cost per unit = $16.8+$6.10+$3.3 = $26.2

Variable cost per unit for the special order = $26.2+$5.7 = $31.90

Therefore total variable plus one time investment cost = [$31.9*9100] +$45500 = $335790

Therefore, incremental net operating income = $418600-$335790 = $82810

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