Question

A customer has requested that Lewelling Corporation fill a special order for 2,200 units of product S47 for $27 a unit. While the product would be modified slightly for the special order, product S47's normal unit product cost is $20.50: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Unit product cost $ 5.80 4.00 2.90 7.80 $20.50 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 $1.40 per unit and that would require an investment of $12,000 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: Multiple Choice O $16,380 O ($11,700) O $12,200 O ($2,000)

Answer 1

Incremental analysis

Incremental revenue (2200*27)	59400
Incremental cost
Direct material (2200*5.8)	12760
Direct labor	8800
Variable manufacturing overhead	6380
Additional variable cost (2200*1.4))	3080
Special molds	12000
Incremental profit (loss)	16380

So answer is a) $16380