Eley Corporation produces a single product. The cost of producing and selling a

Question

Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 46.000 units per month is as follows: The normal selling price of the product is $98.10 per unit. An order has been received from an overseas customer for 2,600 units to be delivered this month at a special discounted price. This order would have no effect on the company's normal sales and would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.80 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $82.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

Explanation / Answer

ELEY CORPORATION Normal Special Order Production 46,000 2600 Selling Price 98.1 82.4 Direct Materials 45.6 45.6 Direct Labour 8.7 8.7 Variable Manufacturing Overhead 1.7 1.7 Fixed Manufacturing Overhead 18.5 0 Variable Selling and administrative Expenses 3 1.2 Fixed Selling & administrative Expenses 14 0 Profit per unit 6.6 25.2 Total Profit 303600 65520 Net operting Income increase by 65520

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