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In: Accounting

Incremental Analysis of Special sales order decision per unit total order (11,000 units) Revenue from special...

Incremental Analysis of Special sales order decision per unit total order (11,000 units)
Revenue from special order
Less Variable expense associated with the order
Direct materials
direct labor
variable manufacturing overhead
contribution margin

less: additional fixed expenses associated with the

order

Increase (decrease) in operating income from the

special order
Data Table Total costs for 11,000 units
Direct materials $363,000
Direct labor 77,000
Variable manufacturing overhead 121,000
Fixed manufacturing 140,000
Total manufacturing costs 701,000
The​ company's relevant range extends to 126,000 units. Relax has received a special order for 11,000 t-shirts at a special price of $74,250 for the entire order. The special order​ t-shirt would use a fabric that is less expensive than the standard fabric used by Relax​,which would allow Relax to save$0.30 per​ t-shirt in direct materials when manufacturing this special order. Relax has the excess capacity to manufacture this special order. Its total fixed costs will not be impacted by the special order.

Solutions

Expert Solution

  • All working forms part of the answer
  • Answer is provided as asked
  • Working for direct material cost

Direct Materials cost

$363000

Total units

11000

Normal material cost per unit

$33

Direct material cost saved per unit

$0.3

Direct material cost for special order

$32.7

Special order price = $74,250
Units = 11000 units
Sale price per unit = 74250 / 11000 = $6.75

Since, Sale price per unit ($6.75) does not even exceed the direct material cost per unit ($32.7), the acceptance of this offer will result in decrease in Net iNcome.

  • Answer

Incremental Analysis of Special sales order decision

per unit ($)

total order (11,000 units) ($)

Revenue from special order

6.75

74250

Less: Variable expense associated with the order

Direct materials

32.7

359700

direct labor

7

77000

variable manufacturing overhead

11

121000

contribution margin

-43.95

-46750

Less: additional fixed expenses associated with the

order

Increase (decrease) in operating income from the special order

$(43.95)

$(46750)

ekkarill92 answered 1 year ago
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