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Question(s) / Instruction(s):

A company has received a request for a special order of 6,000 units of product Y45 for $13.70 each. Product Y45s unit product cost is $11.50, determined as follows:

Product cost per unit:

                Direct materials                                $2.50

                Direct labor                         1.90

                Variable overhead           2.30

                Fixed overhead                                4.80

Direct materials and direct labor are variable costs. The special order would have no effect on the companys total fixed costs. The customer would like modifications made to product Y45 that would increase the existing variable costs by $8.10 per unit and that would require an investment of $20,000 in special molds that would have no savage value. This special order would have no effect on the companys other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the companys overall net operating income would increase (decrease) by:          

 a)           ($26,600)            

 b)           $13,200

 c)           ($55,400)            

 d)           ($21,300)

 

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