Direct materials - $4

Variable direct manufacturing labor - 38

Variable manufacturing overhead -16

Fixed manufacturing overhead allocated -19

Total manufacturing cost per unit - $77

The Pane Company has offered to sell 10,000 units of Part No. 498 to Springfield for $ 73 per unit. Springfield will make the decision to buy the part from Pane if there is an overall savings of at least $ 50,000 for Springfield. If Springfield accepts Pane's offer, $ 6 per unit of the fixed overhead allocated would be eliminated. Furthermore, Springfield has determined that the released facilities could be used to save relevant costs in the manufacture of Part No. 575.

1. The Lounge Company manufactures slippers and sells them at $15 a pair. Variable manufacturing cost is $ 7.00 a pair, and allocated fixed manufacturing cost is $ 2.00 a pair. It has enough idle capacity available to accept a one-time-only special order of 25 comma 000 pairs of slippers at $ 9.00 a pair. Lounge 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) $ 50,000 increase,

(c) $ 175,000 increase,

or (d) $225,000 increase? Show your calculations.

Begin by selecting the labels to calculate the effect on operating income and then enter in the supporting calculations.

2. The Springfield Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for 10,000 units of Part No. 498 is as follows:

For Springfield to achieve an overall savings of $ 50,000, 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) $40,000, (b) $ 140,000, (c) $70,000 or (d) $ 130,000? Show your calculations. What other factors might Springfield consider before outsourcing to Pane?