Question

question 15. tullius corporation has received a request for a special order of 8,000 units of product c64 for $50.00 each. the normal selling price of this product is $53.25 each, but the units would need to be modified slightly for the customer. the normal unit product cost of product c64 is computed as follows:

direct materials	$18.10
direct labor	7.40
variable manufacturing overhead	5.20
fixed manufacturing overhead	4.80
unit production cost	$35.50

direct labor is a variable cost. the special order would have no effect on the companys total fixed manufacturing overhead costs. the customer would like some modifications made to product c64 that would increase the variable costs by $5.00 per unit and that would require a one - time investment of $43,000 in special molds that would have no salvage value. this special order would have no effect on the companys other sales. the company has ample spare capacity for producing the special orders.
required:
how much is the \effect\ (incremental net operating income) on the companys total net operating income through accepting the special order?

Explanation:

Step1: Calculate total variable cost per unit

First, find the original variable costs (direct materials + direct labor + variable manufacturing overhead) and then add the additional variable cost.
Original variable cost per unit = \( 18.10 + 7.40 + 5.20 = 30.70 \)
Additional variable cost per unit = \( 5.00 \)
Total variable cost per unit = \( 30.70 + 5.00 = 35.70 \)

Step2: Calculate total revenue from special order

Revenue = number of units × price per unit
Number of units = \( 8000 \), price per unit = \( 50.00 \)
Total revenue = \( 8000 × 50.00 = 400000 \)

Step3: Calculate total variable costs for special order

Total variable costs = number of units × total variable cost per unit
Total variable costs = \( 8000 × 35.70 = 285600 \)

Step4: Calculate total fixed costs for special order

The special molds are a one - time fixed cost for this order, so total fixed cost = \( 43000 \)

Step5: Calculate incremental net operating income

Incremental net operating income = Total revenue - Total variable costs - Total fixed costs
Incremental net operating income = \( 400000 - 285600 - 43000 \)
First, \( 400000 - 285600 = 114400 \)
Then, \( 114400 - 43000 = 71400 \)

Answer:

The incremental net operating income from accepting the special order is \(\$71400\).