Question

A customer has requested that Lewelling Corporation fill a special order for 3,100 units of product S47 for $31 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $22.20: Direct materials: $6.70 Direct labor: $3.00 Variable manufacturing overhead: $3.80 Fixed manufacturing overhead: $8.70 Unit product cost: $22.20 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 $2.30 per unit and that would require an investment of $11,000.00 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:

$36,120

Explanation:

Calculation for what the annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

First step is to calculate the Revenue from special order

Revenue from special order = (3100 units * 31)

Revenue from special order= 96,100

Second step is to calculate the Cost of making

Cost of making=[(Direct materials: $6.70+ Direct labor: $3.00+ Variable manufacturing overhead: $3.80+ Increase in variable costs 2.30)*3100 units + investment 11,000]

Cost of making=$15.80*3100 units + investment 11,000

Cost of making=$48,980+$11,000

Cost of making=$59,980

Last step is to calculate the Profit

Profit = $96,100-$59,980

Profit=$36,120

Therefore what the annual financial advantage (disadvantage) for the company as a result of accepting this special order should be is $36,120