A customer has requested that Lewelling Corporation fill a special order for 2,1

Question

A customer has requested that Lewelling Corporation fill a special order for 2,100 units of product S47 for $26 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $19.20:

Assume that 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 S47 that would increase the variable costs by $1.30 per unit and that would require an investment of $11,000.00 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. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Direct materials $ 5.70 Direct labor 3.00 Variable manufacturing overhead 2.80 Fixed manufacturing overhead 7.70 Unit product cost $ 19.20

Explanation / Answer

Incremental analysis :

The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be 16720

Incremental revenue (2100*26) 54600 Incremental cost Direct material (2100*5.7) 11970 Direct labour 6300 Variable manufacturing overhead 5880 Additional cost (2100*1.3) 2730 Special molds 11000 Total incremental cost 37880 Incremental profit (loss) 16720

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