Question

A customer has requested that Lewelling Corporation fill a special order for 9,000 units of product S47 for $20.50 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $14.40: Direct materials $ 3.10 Direct labor 1.50 Variable manufacturing overhead 6.40 Fixed manufacturing overhead 3.40 Unit product cost $ 14.40 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 $5.00 per unit and that would require an investment of $36,000 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

Answer:

$4,500

Explanation:

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

Sales (9,000 units × 20.50)    $184,500

Less: Variable costs:      

Direct materials (9,000 units × $3.10) -$27,900  

Direct labor (9,000 units × $1.50)         -$13,500

Variable manufacturing overhead (9,000 units × $6.40) $57,600

Increase in variable costs (9,000 units × $5) -$45,000

Less: Investment in special molds  -$36,000  

Financial advantage                                  $4,500

We simply deduct the all cost from the sales so that the financial advantage could come