Question

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.

Answer 1

• 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)