Question
A golf company manufactures a popular driver for $195. The unit product cost for this driver is $146 as shown below: Direct materials 82.00 Direct
A golf company manufactures a popular driver for $195. The unit product cost for this driver is $146 as shown below:
Direct materials | 82.00 |
Direct labor | 46.00 |
Manufacturing overhead | 18.00 |
Unit product cost | 146.00 |
Directors of a corporate-sponsored tournament have approached the company about buying 30 of these special drivers as giveaway items at a discounted price of $170 each.
The directors would like a special logo added to the drivers that would require the company to purchase a special tool for $400 and that would increase the direct materials cost per driver by $1.50.
The special tool would have no other use once the special order is completed.
Furthermore, the company has determined that of the $18 per unit of manufacturing overhead (shown in the table above), most is of a fixed nature and unavoidable, while $5 per unit is considered variable manufacturing overhead.
The company has also determined that accepting this order would have no impact on its ability to produce and sell drivers to other customers.
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1. What is the total incremental revenue associated with this special order?
2. What are the total incremental variable costs associated with this special order?
3. What are the total incremental fixed costs associated with this special order?
4. What are the total incremental costs (fixed plus variable) associated with this special order?
5. What is the financial advantage/(disadvantage) of accepting this special order? In other words, what is the incremental net income of the order?
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