Jade Ltd. manufactures a product, which regularly sells for $66. This product has the following costs...

Jade Ltd. manufactures a product, which regularly sells for $66. This product has the following costs per unit at the expected production of 48518 units:

	Direct labour	$15
	Direct materials	9
	Manufacturing overhead (37% is variable)	24

The company has the capacity to produce 51625 units. A wholesaler has offered to pay $56 for 12218 units.

If Jade Ltd. accepts this special order, operating income would increase (decrease) by:

Select one:

a. $282480

b. $97744

c. $-19276

d. $-6625

The Peterson Corporation manufactures a product that it sells for $68.70. The variable costs are $40.88 and the annual fixed costs are $971459. Peterson’s capacity is 106288 units per year but is currently only selling 88260 units per year. This is not expected to change in the future.

Peterson was approached to provide 32083 units as a one-time order for a price of $45.64 per unit. If Peterson accepts the special order, what will be the impact on operating income?

Select one:

a. $-497282

b. $739834

c. $152715

d. $-238295

Solutions

Expert Solution

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Production Capacity	51625	Units	A
Expected Sale/Production	48518	Units	B
Wholesaler Offer	12218	Units	C
Loss of Sale due to Wholesale Offer	9111	Units	B+C-A

New Offer:

Inremental Sales Revenue	12218*56	$ 684,208
Less: Incremental Variable Cost
Direct Material	12218*9	$ 109,962
Direct Labor	12218*15	$ 183,270
Veriable Overhead	12218*8.88	$ 108,496
Less: Margin lost due to capacity
9111*(66-9-15-8.88)		$ 301,756

Operating income would decrease by		$ -19,276	C


Production Capacity	106288	Units	A
Current Sale	88260	Units	B
One time offer	32083	Units	C
Loss of Sale due to Wholesale Offer	14055	Units	B+C-A

New Offer:

Inremental Sales Revenue	32083*45.64	$ 1,464,268
Less: Incremental Variable Cost
	32083*40.88	$ 1,311,553


Less: Margin lost due to capacity
14055*(68.7-40.88)		$ 391,010

Operating income would decrease by		$ -238,295	D

ekkarill92 answered 1 year ago

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