Question

The Minton Company has gathered the following information for a unit of its most popular product: Direct materials $ 7 Direct labor 3 Overhead (50% variable) 6 Cost to manufacture 16 Desired markup (50%) 8 Target selling price $ 24 The above cost information is based on 5,900 units. A foreign distributor has offered to buy 2,900 units at a price of $19 per unit. This special order would not disturb regular sales. Variable shipping and other selling expenses would be an additional $1 per unit for the special order. If the special order is accepted, Minton's operating profits will increase by:

Answer 1

Answer: $14,500

Explanation:

Sales = 2,900 units × $19 per unit

         = $55,100

Direct material = 2,900 units × $7

                         = $20,300

Direct labor = 2,900 units × $3

                         = $8,700

Variable Overhead = 2,900 units × 50% × 6

                                = $8,700

Variable shipping and other selling expense = 2,900 units × $1 per unit

                                                                           = $2,900

Net profit from special order:

= Sales - Direct material - Direct labor - Variable Overhead - Variable shipping and other selling expense

= $55,100 - $20,300 - $8,700 - $8,700 - $2,900

= $14,500

Therefore, if the special order is accepted, Minton's operating profits will increase by $14,500.