Holtrop Corporation has received a request for a special order of 9,500 units of

ID: 2475017 • Letter: H

Question

Holtrop Corporation has received a request for a special order of 9,500 units of product Z74 for $47.00 each. The normal selling price of this product is $52.10 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product Z74 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 Z74 that would increase the variable costs by $6.70 per unit and that would require a one-time investment of $46,500 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.

Determine the effect on the company's the incremental net operating income of accepting the special order. (Omit the "$" sign in your response.)

Direct materials $17.80 Direct labor 7.10 Variable manufacturing overhead 4.30 Fixed manufacturing overhead 7.20 Unit product cost $36.40

Explanation / Answer

Sales ( 47 x 9500)

446500

(-) Direct material 17.80 x 9500

-169100

(-) Direct labor (6.70+7.10)x9500

-131100

(-) Variable manufacturing ovh 4.30 x 9500

-40850

(-) One time investment

-46500

Incremental net operating income

58950

Hence Incremental income is 58950