Question

Our company manufactures and sells calculators for $80 each. A major University has offered us $55 per calculator for a one-time order of 500 calculators. Our costs to manufacture a calculator include: direct materials, $25 per unit; direct labor, $20 per unit; variable factory overhead, $15 per unit; and fixed manufacturing overhead, $12 per unit. Assume that we have excess capacity and the special order will not affect regular sales. What is the change in operating income that would result from accepting this special sales order?

Answer 1

Answer:

Effect on income= $2,500 decrease

Explanation:

Giving the following information:

A major University has offered us $55 per calculator for a one-time order of 500 calculators.

direct materials= $25 per unit

direct labor= $20 per unit

variable factory overhead= $15 per unit

Because there is an unused capacity and it is a special offer, we will not take into account the fixed costs.

Unitary cost= 25 + 20 + 15= $60

Effect on income= 500*(55 - 60)

Effect on income= $2,500 decrease