Holtrop Corporation has received a request for a special order of 9,700 units of

Question

Holtrop Corporation has received a request for a special order of 9,700 units of product Z74 for $47.20 each. The normal selling price of this product is $52.30 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 materials $18.00 Direct labor 7.30 Variable manufacturing overhead 4.50 Fixed manufacturing overhead 7.40 Unit product cost $37.20 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 $6.90 per unit and that would require a one-time investment of $46,700 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. Required: Determine the effect on the company's the incremental net operating income of accepting the special order. (Omit the "$" sign in your response.) Incremental net operating income $

Explanation / Answer

Holtrop Corporation All Amounts in $ Special Order Analysis Sales expected from special order of Z74 457840 Cost of Goods Sold Direct Materials 174600 Direct Labor 70810 Variable Manufacturing Overheads (including additional $ 6.90) 110580 Fixed Manufacturing Overheads 118480 474470 (including one-time investment) Decrease in Net Operating Income -16630 on acceptance of order

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