Question

The following are hibiscus company cost of making and selling an item:

Description Amount per unit
Direct materials $9
Direct labor $4
Variable manufacturing overhead $2
Fixed manufacturing overhead $5
Variable selling and administrative $2
Fixed selling and administrative $8
A one-time only special order has been received for 600 units. The company has capacity to accept the oder and it would not affect regular sales. The sales price for the special order is $26 per unit. Total fixed costs would not be affected by this order. The variable selling and administrative costs would have to be incurred for this special order. The order would require an additional $3 per unit for specialized materials and a new machine that costs $2,000. What is the financial advantage or disadvantage of accepting the special order?
A. $3,600 advantage.
B $1,600 advantage.
C. $2,400 disadvantage.
D. $2,800 advantage.

Answer 1

A. $3,600 advantage.

Step-by-step explanation:

Calculating the financial advantage of disadvantage of special order

Increase in revenue (600*$26) $15,600

Less: Increase in direct materials (600*$9) $5,400

Less: Increase in direct labor (600*$4) $2,400

Less: Increase in variable manufacturing $1,200

overhead (600*$2)

Less: Increase in variable selling and $1,200

administrative (600*$2)

Less: Increase in cost for specialized $1,800

material (600*$3)

Financial advantage from special order $3,600