A customer has requested that Inga Corporation fill a special order for 3,500 un

Question

A customer has requested that Inga Corporation fill a special order for 3,500 units of product K81 for $30 a unit. While the product would be modified slightly for the special order, product K81's normal unit product cost is $25.40:

9.10

$25.40

   
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 $1.70 per unit and that would require an investment of $11,500 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. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

a. $30,500

b. $(30,850)

c. $16,100

d. $(1,350)

  Direct materials $6.60   Direct labor 5.50   Variable manufacturing overhead 4.20   Fixed manufacturing overhead

9.10

  Unit product cost

$25.40

Explanation / Answer

No.of units 3500 Sales (3500*30) 105000 Direct Material $6.60 $23,100.00 Direct labor 5.5 19250 Variable manufacturing Cost 5.9 20650 Special Investment 11500 Increase in Net Operating Income $30,500.00 Ans a Fixed manufacturing cost is unavoidable so is not considerd it will be incurred irrespective of special order accepted or not.

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