Question
SureLock Manufacturing Company makes and sells several models of locks. The cost records for the ZForce lock show that manufacturing costs total $22.00 per lock.
SureLock Manufacturing Company makes and sells several models of locks. The cost records for the ZForce lock show that manufacturing costs total $22.00 per lock. An analysis of this amount indicates that $12.76 of the total cost has a variable cost behavior pattern, and the remainder is an allocation of fixed manufacturing overhead. The normal selling price of this model is $38.00 per lock. A chain store has offered to buy 12,000 ZForce locks from SureLock at a price of $15.40 each to sell in a market that would not compete with SureLock's regular business. SureLock has manufacturing capacity available and could make these locks without incurring additional fixed manufacturing overhead.
Required:
- Calculate the effect on SureLock's operating income of accepting the order from the chain store.
- If SureLock's costs had not been classified by cost behavior pattern, is it likely that a correct special order analysis would have been made?
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