Question

ABC Corporation makes a range of products. Management is considering a special order for 700 units of product J45 at $50 each. The normal selling price of product J45 is $75. The cost information is as follows: Direct materials ………………………………………….………….…….$17 per unit Direct labor ………………………………………………………………..$18 per unit Variable manufacturing overhead…………………………………………..$3 per unit Fixed manufacturing overhead……………………………………………..$13 per unit Variable selling and administrative expenses….………….………….…….$5 per unit Fixed selling and administrative expenses…..………………..……………..$12 per unit If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. (a). If the special order were accepted, what would be the impact on the company's overall profit? Please show all calculations and label items clearly. (15 points)

Answer 1

Answer:

Effect n income= $4,900

Explanation:

Giving the following information:

Management is considering a special order for 700 units of product J45 at $50 each.

Direct materials= $17 per unit

Direct labor= $18 per unit

Variable manufacturing overhead= 3 per unit

Variable selling and administrative expenses= $5 per unit

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

First, we determine the unitary variable cost:

Unitary varaible cost= 17 + 18 + 3 + 5= $43

Now, we can calculate the effect on income:

Effect n income= 700*(50 - 43)= $4,900