A customer has requested that Inga Corporation fill a special order for 2,300 un

Question

A customer has requested that Inga Corporation fill a special order for 2,300 units of product K81 for $28 a unit. While the product would be modified slightly for the special order, product K81's normal unit product cost is $23.20:

8.50

$23.20

   
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 modifications made to product K81 that would increase the variable manufacturing costs by $1.50 per unit and that would require an investment of $10,300 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. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

a.$16,840

b.$(15,230)

c.$11,040

d.$(2,710)

  Direct materials $6.20   Direct labor 4.90   Variable manufacturing overhead 3.60   Fixed manufacturing overhead

8.50

  Unit product cost

$23.20

Explanation / Answer

a.$16,840 Statement showing computations Particulars Amount Sales Revenue = 2,300*28                             64,400.00 Less Relevant Costs Direct Materials =2,300*6.20                             14,260.00 Direct Labour =2,300*4.90                             11,270.00 Variable Manufacturing Overhead = 2,300 *(3.60+1.50)                             11,730.00 Special Investment                             10,300.00 Total Costs                             47,560.00 Income from special order = 64,400 - 47,560                             16,840.00

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