Question

Mcniff Corporation makes a range of products. The company's predetermined overhead rate is $22 per direct labor-hour, which was calculated using the following budgeted data:

Variable manufacturing overhead	$	95,000
Fixed manufacturing overhead	$	323,000
Direct labor-hours		19,000

Management is considering a special order for 760 units of product O96S at $70 each. The normal selling price of product O96S is $81 and the unit product cost is determined as follows:

Direct materials	$	43.00
Direct labor		12.00
Manufacturing overhead applied		22.00
Unit product cost	$	77.00

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

Financial Advantage

$          7,600.00

Working

Financial advantage (disadvantage) of accepting the special order
Additional Revenue from offer (760 x $70)	$        53,200.00
Less: Total Additional cost due to acceptance of offer	$        45,600.00
Financial Advantage	$          7,600.00

.

Calculation of Additional Cost of Order
	Per Unit	Total
Direct material	$                43.00	$          32,680.00
Direct labor	$                12.00	$            9,120.00
Variable manufacturing overheads (95000/19000= 5 per hour)	$                   5.00	$            3,800.00
Total Additional cost due to acceptance of order	$                60.00	$          45,600.00