Question

4 Analyze special order decision (Learning Objective 3) O Products manufactures t-shirts. It has the following costs when its production level is 100,000 units (t-shirts): Total costs for 100,000 units Direct materials ................. $ 320,000 Direct labor ............ 40,000 Variable manufacturing overhead ...... 85,000 Fixed manufacturing overhead 120,000 Total manufacturing costs ......... $ 565,000 The company's relevant range extends to 115,000 units. Orr has received a special order for 10,000 t-shirts at a special price of $50,000 for the entire order. The special order t-shirt would use a fabric that is less expensive than the standard fabric used by Orr, to save so.50 per t-shirt in direct materials when manufacturing this special order. Orr has the excess capacity to manufacture this special order. Its total fixed costs will not be impacted by the special order. What will happen to Orr's operating income if it accepts this special order? 58-5 Special order decision (Learning Objective 3) Shilling Manufacturing produces and sells oil filters for $3.25 each. A retailer has offered to purchase 20,000 oil filters for $1.55 per filter. Of the total manufacturing cost per filter of $2.10, $1.30 is the variable manufacturing cost per filter. For this special order, Shilling would have to buy a special stamping machine that costs $8,000 to mark the customer's logo on the special order oil filters. The machine would be scrapped when the special order is complete. This special order would use manufacturing capacity that would other- wise be idle. No variable nonmanufacturing costs would be incurred by the special order. Regular sales would not be affected by the special order. Would you recommend that Shilling accept the special order under these conditions?

please answer the following.

Answer 1

S8-4 Orr Products

Per unit cost:

Direct materials ($320000/100000)	3.20
Direct labor ($40000/100000)	0.40
Variable manufacturing overhead ($85000/100000)	0.85

Selling price of special order		50000
Less: Costs of special order
Direct materials [10000 x ($3.20 - $0.50)]	27000
Direct labor (10000 x $0.40)	4000
Variable manufacturing overhead (10000 x $0.85)	8500	39500
Net income from special order $		10500

Orr's operating income will increase by $10500 if it accepts the special order.

Note: Since Orr has excess capacity to manufacture the special order and its total fixed costs will not be impacted by the special order, the fixed manufacturing overheads are irrelevant and hence not considered.

Per HOMEWORKLIB RULES, the first question has been answered. Please post each remaining question separately. Thank you.