Question

Exercise 8-6 Bridgeport Company is a leading manufacturer of sunglasses. One of Bridgeport's products protects the eyes from ultraviolet rays. An upscale sporting goods store has contacted Bridgeport about purchasing 16,000 pairs of these sunglasses. Bridgeport's unit manufacturing cost, based on a full capacity of 102,000 units, is as follows: Direct materials $7 Direct labor 6 Manufacturing overhead (60% fixed) 20 Total manufacturing costs $33 Bridgeport also incurs selling and administrative expenses of $76,460 plus $3 per pair for sales commissions. The company has plenty of excess manufacturing capacity to use in manufacturing the sunglasses. Bridgeport's normal price for these sunglasses is $45 per pair. The sporting goods store has offered to pay $36 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 Bridgeport's income if the special order were accepted? by $ Bridgeport's income will

Answer 1

Ans:

Bridgereport's Income will increase by $240,000

	Per unit	Total 15000 units
Incremental revenue	36	576,000	36*16000
Incremental costs:
Direct materials	7	112,000	7*16000
Direct labor	6	96,000	6*16000
Variable manufacturing overhead	8(20*40%)	128,000	8*16000
Total Incremental costs		336,000
Incremental net operating income (loss)		240000