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 2,500 of the US umbrellas at a price of $23 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 S10.00 5.00 6.00 2.50 $23.50 $31.00 Total cost Regular sales price Required 1. Compute the incremental profit (or loss) from accepting the special order Profit (or Loss) by

Explanation / Answer

1 Incremental revenue 57500 =2500*23 Costs: Direct materials 25000 =2500*10 Direct labor 12500 =2500*5 Variable manufacturing overhead 15000 52500 =2500*6 Income(loss) 5000 Profit increases by $5000 2 Yes 3 Incremental revenue 60000 =2300*4.5 Costs: Direct materials 30000 Direct labor 15000 Variable manufacturing overhead 18000 63000 Income(loss) -3000 Profit decreases by $3000 4 Sepcial order price = $31 per unit

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