Question

Mcniff Corporation makes a range of products. The company's predetermined overhead rate is $20 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead 51,000 $289,000 17,000 Fixed manufacturing overhead Direct labor-hours Management is considering a special order for 740 units of product O96S at $68 each. The normal selling price of product 096S is $79 and the unit product cost is determined as follows: Direct materials 41.00 Direct labor 14.00 20.00 Manufacturing overhead applied $75.00 Unit product cost If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order. Required: The financial advantage (disadvantage) for the company as a result of accepting this special order would be:

Answer 1

Incremental analysis

Incremental revenue (740*68)	50320
Incremental cost
Direct material (740*41)	30340
Direct labor	10360
variable overhead (740*3)	2220
Total incremental cost	42920
Incremental profit (loss)	7400

Financial advantage = $7400