Mohave Corp. makes several varieties of beach umbrellas and accessories. It has

Question

Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine Lost Mine has offered to buy 3,400 of the US umbrellas at a price of $35 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead $14.00 8.00 10.50 2.50 Total cost Regular sales price $43.00 Required 1. Compute the incremental profit (or loss) from accepting the special order it (or Loss) by 2. Should Mohave accept the special order? O No Yes

Explanation / Answer

1) Incremental analysis :

Profit increase by $8500

2) Yes, Mohave should accept the special order

Incremental revenue (3400*35) 119000 Incremental cost Direct material (3400*14) -47600 Direct labour (3400*8) -27200 Variable manufacturing overhead (3400*10.5) -35700 Total incrementa cost -110500 Incremental profit (loss) 8500

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.