Question

A customer has requested that Inga corp fill a special order of 2000 units of product A for 25/unit. While the product would be modified slightly for the special order, product A's normal unit product cost is19.90. DL is a variable cost. The special order would have no effect on the company's total FMOH costs. The customer would like mods made to the product that would increase Vcosts by 1.20/unit and would require an investment of10,000 in special molds that would have no salvage value. The special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall NOI would increase (inc) by:

1) $13,000
2) $(9,700)
3) $10,200
4) $(2,200)

Answer 1

If Inga corp accepts the special order, the company's overall NOI would decrease by $2,200, taking into account the additional revenue, the increased variable costs per unit, and the one-time investment in special molds.

Step-by-step explanation:

To calculate the net operating income (NOI) increase if Inga corp were to accept a special order, we need to consider the increased variable costs, the one-time investment, and the additional revenue from the order.

First, we calculate the additional variable costs per unit by adding the $1.20 modification cost to the regular unit product cost of $19.90, resulting in an adjusted variable cost of $21.10 per unit for the special order. Next, we determine the total variable costs for the special order of 2,000 units: 2,000 units × $21.10/unit = $42,200.

The one-time investment for special molds is $10,000. We add this to the total variable costs to find the total costs for the special order: $42,200 + $10,000 = $52,200.

To calculate the total revenue from the special order, we multiply the number of units by the price per unit: 2,000 units × $25/unit = $50,000.

Finally, we subtract the total costs of the special order from the total revenues to determine the increase or decrease in NOI: $50,000 (revenue) - $52,200 (total costs) = $(2,200).

Therefore, if the special order is accepted, the company's overall NOI would decrease by $2,200.