1. The Comfy Company manufactures slippers and sells them at $11 a pair. Variable manufacturing cost is $5.25 a pair, and allocated fixed manufacturing cost is $1.55 a pair. It has enough idle capacity available to accept a one-time-only special order of 25,000 pairs of slippers at $6.80 a pair. Comfy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $38,750 increase, (c) $131,250 increase, or (d) $170,000 increase? Show your calculations. 2. The Reston Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 25,000 units of Part No. 498 is as follows: (Click to see the manufacturing cost per unit.) Read part 2's requirement. 1. The Comfy Company manufactures slippers and sells them at $11 a pair. Variable manufacturing cost is $5.25 a pair, and allocated fixed manufacturing cost is $1.55 a pair. It has enough idle capacity available to accept a one-time-only special order of 25,000 pairs of slippers at $6.80 a pair. Comfy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $38,750 increase, (c) $131,250 increase, or (d) $170,000 increase? Show your calculations. Begin by selecting the labels to calculate the effect on operating income and then enter in the supporting calculations. * units in special order Effect on operating income Data table Direct materials $ 10 33 Variable direct manufacturing labor Variable manufacturing overhead Fixed manufacturing overhead allocated 8 8 8 20 $ 71 Total manufacturing cost per unit The Seat Company has offered to sell 25,000 units of Part No. 498 to Reston for $66 per unit. Reston will make the decision to buy the part from Seat if there is an overall savings of at least $30,000 for Reston. If Reston accepts Seat's offer, $11 per unit of the fixed overhead allocated would be eliminated. Furthermore, Reston has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575. Print Done Requirement For Reston to achieve an overall savings of $30,000, the amount of relevant costs that would have to be saved by using the released facilities in the manufacture of Part No. 575 would be which of the following: (a) $125,000, (b) $130,000, (c) $180,000 or (d) $225,000? Show your calculations. What other factors might Reston consider before outsourcing to Seat? Print Done
