Question
Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of
Eley Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 40,000 units per month is as follows:
Direct materials | $60.4 |
Direct labor | $18.1 |
Variable manufacturing overhead | $2.5 |
Fixed manufacturing overhead | $22.1 |
Variable selling & administrative expense | $3.0 |
Fixed selling & administrative expense | $17.1 |
The normal selling price of the product is $130.1 per unit. An order has been received from an overseas customer for 1,950 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.4 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $120.2 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?
$(9,730)
$40,670
$75,270
$(2,270)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started