#19 Eley Corporation produces a single product. The cost of producing and sellin

Question

#19

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 55,000 units per month is as follows:

An order has been received from an overseas customer for 3,500 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 $2.70 less per unit on this order than on normal sales.

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 $91.40 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

$94,500

$23,450

$(66,500)

$(77,000)

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 55,000 units per month is as follows:

Explanation / Answer

Incremental analysis :

so answer is a) 94500

Incremental revenue (3500*91.40) 319900 Incremental cost Direct material (3500*50.10) -175350 Direct labour (3500*9.6) -33600 Variable manufacturing overhead (3500*2.60) -9100 Variable selling and administrative expense (4.80-2.70)*3500 -7350 Incremental cost -225400 Incremental profit 94500

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