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

Question

Elfalan 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 43,000 units per month is as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling & administrative expense Fixed selling & administrative expense Per Unit $44.10 $ 8.40 $ 1.40 $17.90 $2.40 $11.00 The normal selling price of the product is $92.10 per unit. An order has been received from an overseas customer for 2,300 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $1.50 less per unit on this order than on normal sales. Direct labor is a varlable 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 $79.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be

Explanation / Answer

At normal activity level of 43,000 units

Computation of net income : (Amounts in $ )

An order has been received for 2300 units for a special discount price .

Computation of Total net income by adding production of 2300 units for sale 2 discounted price :

353280

Sales (92.10*43000units ) 3963000 Less: Direct material (44.10*43000) 1896300 Direct labour (8.40*43000) 361200 1705500 Less: Variable costs Variable manfacturing OH 60200 Variable selling OH 103200 Contribution 1542100 Less:Fixed costs Fixed Manfacturing OH 769700 Fixed selling OH 473000 Net income 299400

An order has been received for 2300 units for a special discount price .

Computation of Total net income by adding production of 2300 units for sale 2 discounted price :

Sales (92.10*43000units ) + (2300*79.4) 4142920 Less: Direct material (44.10*43000+2300) 1997730 Direct labour (8.40*43000+2300) 380520 1764670 Less: Variable costs Variable manfacturing OH 63420 Variable selling OH 105270 Contribution 1595980 Less:Fixed costs Fixed Manfacturing OH 769700 Fixed selling OH 473000 Net income

353280

By comparing the two statements we can conclude that after accepting the order of 2300 units at a special discount price the net income would be higher then before accepting the order. So it is a financial advantage to the company as there is an increase in net income over the period. this is due to some portion of decrease in selling OH cost and Fixed cost which was not changed for increase in units.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

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