Question

Your Company makes and sells portable televisions. Each television regularly sells for $210. The following cost data per television is based on a full capacity of 10,000 televisions produced each period.

	Direct materials	$80
	Direct labor	$60
	Manufacturing overhead (70% variable and 30% fixed)	$40

           

Your Company has received a special order for a sale of 2,000 televisions to an overseas

customer for $195 per set. The only selling costs that would be incurred on this order would be

$10 per television for shipping. Your Company is now selling 6,000 televisions through regular

channels each period. By how much would the company's overall net operating change if Your

Company accepts the special order?

		$26,000
		$34,000
		$54,000
		$86,000
		$66,000

Answer 1

Present Scenario :

Company Sells 6000 television sets through regular channel

Statement showing net profit income

Particulars	Amount ($)
Sales Revenue [6000 units * $ 210 ]	1,260,000
Less: Direct material [6000 units * $ 80 ]	480,000
Less: Direct labor [6000 units * $ 60 ]	360,000
Less: Variable manufacturing Overheads [6000 units * $ 28 ] * 70 % of $ 40	168,000
Contribution Margin	252,000
Less: Fixed manufacturing Overheads [6000 units * $ 12 ] * 30 % of $ 40	72,000
Net operating income	180,000

Proposed Scenario :

Company Sells 6000 television sets through regular channel And special order 2000 television sets are exported overseas

Statement showing net profit income

Particulars	Regular channel Amount ($)	Special order Amount ($)	Total Amount ($)
Sales Revenue [6000 units * $ 210 ] ; [2000 units * $ 195 ]	1,260,000	390,000	1,650,000
Less: Direct material [6000 units * $ 80 ]; [2000 units * $ 80 ]	480,000	160,000	640,000
Less: Direct labor [6000 units * $ 60 ];2000 units * $ 60 ]	360,000	120,000	480,000
Less: Variable manufacturing Overheads [6000 units * $ 28 ];[2000 units * $ 28 ] * 70 % of $ 40	168,000	56,000	224,000
Less : Shipping cost [2000 units * $ 10 ]	-	20,000	20,000
Contribution Margin	252,000	34,000	286,000
Less: Fixed manufacturing Overheads [6000 units * $ 12 ] * 30 % of $ 40	72,000	-	72,000
Net operating income	180,000	34,000	214,000

Note: The fixed manufacturing overhead given is for the production of 10,000 television sets therefore by accepting the special order of 2000 television sets there wont be additional fixed manufacturing overheads.

Analysis: From the above statement it is evident that the net operating income increases from $ 180,000 to $ 214,000 by accepting the special order of overseas customer , The change is an increase of $ 34,000.

Therefore the answer is second option $ 34,000