Question

The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 88,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows: 26.30 20.60 $ 15.70 $ 18.50 $ 13.80 $ 8.90 Direct materials Direct labor . Variable manufacturing overhead Fixed manufacturing overheacd Variable selling expense Fixed selling expense The regular selling price of one unit of Product C is $116.80. A special order has been received by Melrose from Moore Corporation to purchase 6,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C In the special order. The machine will cost $7,800 and will have no use after the special order is filled. Assume that direct labor is a variable cost Assume Melrose expects to sell 78,000 units of Product C to regular customers next year. If Moore company offers to buy the 6,000 special units at $106.80 per unit, the effect of accepting the special order on Melroses net operating income for next year will be:EEE O $19.800 increase O $31,800 decrease O $80,100 Increase O $236,700 increase

Answer 1

Calculation of Net operating Income on special order
Sales Value	640800
Direct material	157800
Direct labor	123600
Variable manufacturing overhead	94200
Variable selling expenses	20700
Cost of special machine	7800
Net operating Income	236700
Net operating income for next year will be:
$236,000 Increase