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The following information is for a company that makes a variety of products. The company's predetermined overhead rate is $16 per direct labor-hour, which
The following information is for a company that makes a variety of products. The company's predetermined overhead rate is $16 per direct labor-hour, which was calculated based on the following data. Variable manufacturing overhead Fixed manufacturing overhead Direct labor-hours $ 88,000 $264,000 22,000 Management is considering a special order for 580 units of one of their products at $52 each. The normal selling price of the product is $63 and the unit product cost is determined as follows: Direct materials Direct labor Manufacturing overhead applied Unit product cost $ 25.00 18.00 16.00 $ 59.00 If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order. The customer wants a modification that would increase the direct materials cost by $.25 per unit. Because of the special-order customer's location, there would also be a fixed shipping cost of $400 to fulfill the order. Required: The financial advantage (disadvantage) for the company as a result of accepting this special order would be:
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