Question

A customer has requested that Byrd Corporation fill a special order for 9,000 units of product S51 for $20.50 a unit. Product S51's normal unit product cost is $14.40: Direct materials $ 3.10 Direct labor 1.50 Variable overhead 6.40 Fixed overhead 3.40 Unit product cost $ 14.40 The customer would like modifications made to product S51 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. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be: _______

Answer 1

Answer:

Effect on income= $4,500 increase

Explanation:

Giving the following information:

Special offer: 9,000 units of product S51 for $20.50 a unit.

Direct materials $ 3.10

Direct labor 1.50

Variable overhead 6.40

The customer would like modifications made to product S51 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.

Because it is a special offer, we will not have into account the fixed costs.

Unitary variable cost= 3.1 + 1.5 + 6.4 + 5= $16

Investment= 36,000

Effect on income= 9,000* (20.5 - 16) - 36,000

Effect on income= 40,500 - 36,000

Effect on income= $4,500 increase