Question

A customer has requested that Lewelling Corporation fill a special order for 2,600 units of product S47 for $31 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $20.70:

Direct materials	$	6.20
Direct labor		3.00
Variable manufacturing overhead		3.30
Fixed manufacturing overhead		8.20
Unit product cost	$	20.70

Assume that direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product S47 that would increase the variable costs by $1.80 per unit and that would require an investment of $16,000.00 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:

Answer 1

Answer :

Particulars	Amount
Sales (2600*31)	80600
Less : Variable cost (2600*14.30)	37180
Contribution	43420
Less : Fixed cost	16000
Income	27420
Note
Particulars	Amount
Direct material	6.20
Direct labor	3.00
Variable overhead	3.30
Additional overhead	1.80
Cost	14.30

So the answer is $27,420