Direct labor.. Variable manufacturing overhead $4.30 $1.90 -Fixed manufacturing

Question

Direct labor.. Variable manufacturing overhead $4.30 $1.90 -Fixed manufacturing overhea Variable sellins -Fixed selling The normal selling price An order has been received from an o special discounted price. This order would have no effect on the change the total amount c would be $0.70 less per unit on this order than on normal sales. verseas customer for 2,000 units to be delivered this month at a company's normal sales and would not f the company's fixed costs. The variable selling and administrative expense Suppose there is a special discounted price on the sp mple idle capacity to produce the units required by the overseas customer and the order is $51.20 per unit. By how much would this special order ecial increase (decrease) the company's net operating income for the month? 39, 7. Part i8 is used in one of Bayfront Corporation's products. The company's Accounting Department reports the following costs of producing the 12,000 units of the part that are needed every year Direct materials. Direct labor.. Variable overhead Supervisor's salary... Depreciation of special equipment.... Allocated general overhead. Per Unit $4.50 $1.20 $2.70 $3.00 $2.30 $1.80 An outside supplier has offered to make the part and sell it to the company for $14.70 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's rhead costs would be avoided. If management decides to buy the part from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income?

Explanation / Answer

Variable cost of manufacturing :Direct material +Direct labor+ variable overhead +supervisor salary

       = 4.5+1.2+2.7+3

      = $ 11.4

If purchase is made from outside suppliers ,net income will decrease by $ 34600 .

**allocated cost and depreciation is a fixed cost that will be incurred whether offer is accepted or not (unless avoidable)

Saving In variable cost of manufacturing [11.4*12000] 136800 saving in allocated cost 5000 less:Incremental cost of purchase [14.7*12000] (176400) Increase /(decrease )in net income (34600)

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