Question

A customer has requested that Lewelling Corporation fill a special order for 2,600 units of product S47 for $34 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $19.10: Direct materials $ 5.00 Direct labor 5.00 Variable manufacturing overhead 2.10 Fixed manufacturing overhead 7.00 Unit product cost $ 19.10 Assume that direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product S47 that would increase the variable costs by $1.50 per unit and that would require an investment of $18,000.00 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Answer 1

$35,040

Step-by-step explanation:

The computation of the annual financial advantage (disadvantage) for the company is shown below:

Revenue (2,600 units × $34) $88,400

Less:

Direct material ($5 × 2,600 units) ($13,000)

direct labor ($5 × 2,600 units) ($13,000)

variable manufacturing overhead ($2.10 × 2,600 units) ($5,460)

increase in variable cost ($1.50 × 2,600 units) ($3,900)

special mold investment ($18,000)

Net income or financial advantage $35,040

We simply deduct the expenses from the revenue so that the net income could arrive