Question

Exercise 8-6 Monty Company is a leading manufacturer of sunglasses. One of Monty's products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted Monty about purchasing 15,000 pairs of these sunglasses. Monty's unit manufacturing cost, based on a full capacity of 112,000 units, is as follows: Direct materials $6 Direct labor Manufacturing overhead (60% fixed) 20 Total manufacturing costs $30 Monty also incurs selling and administrative expenses of $79,780 plus $2 per pair for sales commissions. The company has plenty of excess manufacturing capacity to use in manufacturing the sunglasses. Monty's normal price for these sunglasses is $42 per pair. The sporting goods store has offered to pay $37 per pair. Since the special order was initiated by the sporting goods store, no sales commission will be paid. What would be the effect on Monty's income if the special order were accepted? Monty's income will by $

Answer 1

Evaluation of Special Order

Sales revenue ( 15,000 x 37)	555,000
Expenses:
Direct materials (15,000 x 6)	-90,000
Direct labor ( 15,000 x 4)	-60,000
Manufacturing overhead ( 15,000 x 8)	-120,000
Net Income	$285,000

Monthly income will increase by $285,000.

Kindly comment if you need further assistance. Thanks‼!