Question

mohave corp makes

PA7-1 Analyzing Special-Order Decision [LO 7-2,7-3] Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a oustom umbrella called the Utimate Shade (US). The special-order umbrelas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. Lost Mine has offered to buy 2,400 of the US umbrellas at a price of $20 each Mohave currently has the excess capacty necessary to accept the offer The following information is related to the production of the Us umbrella Drect materials Direct labor Variable manufacturing overhead s9.00 5,00 5.50 250 $22 00 $28.00 Fixed manufactunng overhead Total cost Regular sales price Required 1. Compute the incremental profit (or loss) from accepting the special order 1200 Proft (or Loss) Inoreases

Answer 1

1
	Per unit	Total 2400 units
Incremental revenue	20	48000
Incremental costs:
Direct materials	9	21600
Direct labor	5	12000
Variable manufacturing overhead	5.5	13200
Total Incremental costs		46800
Incremental net operating income(loss)		1200
Profit(or loss) increases by $1200
2
Yes, accept the special order
3
	Per unit	Total 2900 units
Incremental revenue	17	49300
Incremental costs:
Direct materials	9	26100
Direct labor	5	14500
Variable manufacturing overhead	5.5	15950
Total Incremental costs		56550
Incremental net operating income(loss)		-7250
Profit(or loss) decreases by $7250
4
Special order price	28.00	per unit