Question
A customer requested Lewelling Corporation to place a special order for 2,200 units of S47 products for $38 per unit. The regular unit cost of
A customer requested Lewelling Corporation to place a special order for 2,200 units of S47 products for $38 per unit. The regular unit cost of the S47 product is $16.90, although there will be slight changes to the product for the special order:
Direct materials | $ | 4.60 | |
direct labor | $ | 4.00 | |
Variable production load | $ | 1.70 | |
Fixed production load | $ | 6.60 | |
unit product cost | $ | 16.90 | |
Suppose direct labor is a variable cost. The special order will have no impact on the company's total fixed production overheads. The customer wants changes to the S47 that will increase variable costs by $1.90 per unit and require an investment of $16,000.00 in custom molds with no salvage value. This special order will not have any impact on the company's other sales. The company has sufficient spare capacity to produce the special order.
What would be the annual financial advantage (disadvantage) to the company as a result of accepting this special order?
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