Question

Elfalan 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 48,000 units per month is as follows:

	Per Unit
Direct materials	$	46.60
Direct labor	$	8.90
Variable manufacturing overhead	$	1.90
Fixed manufacturing overhead	$	18.90
Variable selling & administrative expense	$	3.40
Fixed selling & administrative expense	$	16.00

The normal selling price of the product is $102.10 per unit.

An order has been received from an overseas customer for 2,800 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 $2.00 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 $84.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Answer 1

Answer -

Calculation of monthly financial advantage (disadvantage) for the company

	Particulars	Explanation	Amount ($)
I.	Incremental revenue	2800 units * $84.40 per unit	236320
	Incremental costs	-	-
	Direct materials	2800 units * $46.60 per unit	130480
	Direct labor	2800 units * $8.90 per unit	24920
	Variable manufacturing overhead	2800 units * $1.90 per unit	5320
	Fixed manufacturing overhead	Irrelevant	0
	Variable selling & administrative expense	2800 units * ($3.40 - $2.00) per unit	3920
	Fixed selling & administrative expense	Irrelevant	0
II.	Total incremental cost	$130480 + $24920 + $5320 + $3920	164640
Financial advantage		I - II	71680