Question

A) ($72,000)

Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 54,000 units per month is as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling & administrative expense Fixed selling & administrative expense Per Unit $49.60 $ 9.50 $ 2.50 $20.10 $ 4.60 $22.00 The normal selling price of the product is $114.10 per unit. An order has been received from an overseas customer for 3,400 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $2.60 less per unit on this order than on normal sales. Direct labor is a variable cost in this company. Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $90.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:

B) $22,780

C) $91.120

D) ($60,860)

Answer 1

Incremental analysis

Incremental revenue (3400*90.40)	307360
Direct material (3400*49.60)	-168640
Direct labor (3400*9.5)	-32300
Variable manufacturing overhead (3400*2.5)	-8500
Variable selling expense (3400*2)	-6800
Total incremental cost	216240
Incremental profit (loss)	91120

So answer is c) $91120