L Regal produces asngle produst. Tthe compay\'s March 2014 ncome tanemen s as to

Question

L Regal produces asngle produst. Tthe compay's March 2014 ncome tanemen s as toome Seles 11,300 x52201 Gram proft 526.00 Regal's Mull marvafacturing costs were an toliaw S 24,000 Direct moterials 11,200 unis $20) Direct labor (3,200 unitax 532) Variable manufacturing overhes 11,200 units x 51al Fized manutacturing dverhead 24.000 108.800 590 Average 00st Ing and idministrathee expenses are all fwed Regal just received a special arder from a fem in Mexico to purchase 930 units at $80 each The ordes wli not affect the selling price to regular customers Reqwred: Use the template on BlackBoard laj to determine Regal should accapt the special order assuming Regal has excess capacity b] to determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Regal does not have excess capacity Note: ifyou don't like how the template set up, please feel free to change it.

Explanation / Answer

(a). When Regal has excess capacity;-

While accepting this special order Regal has to incur only the variable cost related to product. The fixed cost remain the same it will not increase the cost of special order.

Calculation of profit or loss;-

Direct material (900×$20). = 18000

Direct labour (900×32). = 28800

Variable manufacturing overhead (900×18) = 16200

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Cost of extra 900 units. =63000

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Sales price (900×$ 80) =72000

Cost price. =63000

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Profit. =9000

So accept the special order as the profit is increased by 9000.

(b). When does not have excess capacity

By accepting this special order the fixed as well as variable both cost have to consider. Cost of producing extra unit is same as of 1200 units. That is $ 90 per unit.

Calculations for profit and loss

Sales price (900×80). = 72000

Less Cost of good sold (900×90) =( 81000)

Gross loss. =( 9000)

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