Question

A customer has requested that Lewelling Corporation fill a special order for 2,600 units of product S47 for $31 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $20.70: Direct materials $ 6.20 Direct labor 3.00 Variable manufacturing overhead 3.30 Fixed manufacturing overhead 8.20 Unit product cost $ 20.70 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 $1.80 per unit and that would require an investment of $16,000.00 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

$27,420

Step-by-step explanation:

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

Incremental revenue (2,600 units × $31) $80,600

Incremental cost

Direct material (2,600 units × $6.20) $16,120

Direct labor (2,600 units × $3) $7,800

Variable manufacturing overhead (2,600 units × $3.30) $8,580

Additional variable cost (2,600 units × $1.80) $4,680

Special molds $16,000

Total incremental cost $53,180

Incremental profit (loss) $27,420

We simply deduct the all incremental cost from the incremental revenue so that the incremental profit or loss could come