3) Woodson Corporation provided the following information regarding its only pro
ID: 2580863 • Letter: 3
Question
3) Woodson Corporation provided the following information regarding its only product: Sale price per unit Direct materials used Direct labor incurred Variable manufacturing overhead Variable selling and administrative expenses Fixed manufacturing overhead Fixed selling and administrative expenses Units produced and sold $160,000 $185,000 S120,000 $65,000 $12,000 10,000 Assume no beginning inventory Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 1,200 units at a sale price of $60 per product assuming additional fixed manufacturing overhead costs of $5,000 is incurred? (NOTE: Assume regular sales are not affected by the special order.) (5 points)Explanation / Answer
For 10,000 units
per unit
For 1,200 units
Sales price
$ 60
$ 72,000
Less: Direct material
$ 160,000
$ 16
$ 19,200
Less: Direct labor
$ 185,000
$ 19
$ 22,200
Less: Variable manufacture overhead
$ 120,000
$ 12
$ 14,400
Less: Variable selling & admin.
$ 70,000
-
Less: Fixed manufacture overhead
$ 65,000
$ 5,000
Less: Fixed selling & admin.
$ 12,000
-
Income
$ 11,200
Operating income will increase by $ 11,200 on accepting special order.
*Selling and administrative expenses are unchanged and irrelevant.
For 10,000 units
per unit
For 1,200 units
Sales price
$ 60
$ 72,000
Less: Direct material
$ 160,000
$ 16
$ 19,200
Less: Direct labor
$ 185,000
$ 19
$ 22,200
Less: Variable manufacture overhead
$ 120,000
$ 12
$ 14,400
Less: Variable selling & admin.
$ 70,000
-
Less: Fixed manufacture overhead
$ 65,000
$ 5,000
Less: Fixed selling & admin.
$ 12,000
-
Income
$ 11,200
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