Question

Jade Ltd. manufactures a product, which regularly sells for $69. This product has the following costs per unit at the expected production of 48953 units:

	Direct labour	$16
	Direct materials	9
	Manufacturing overhead (45% is variable)	21

The company has the capacity to produce 52291 units. A wholesaler has offered to pay $58 for 10135 units.

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

Answer 1

		STEP1 = CALCULATION OF VARIABLE COST PER UNIT
		Particulars	Amount
		Direct Material	$                            9
		Direct Labour	$                         16
		Manufacturing   Overhead	$                      9.45
		(45% of $ 21 )
		Total	$                   34.45
		Step 2: CALCULATION OF CONTRIBUTION MARGIN PER UNIT
		Sales =	$                   69.00
		Less: Variable Cost per unit	$                   34.45
		Contribution margin	$                   34.55
		Total Fixed Cost per unit = $ 21 X 55% =	$                   11.55
		Total Unit Produce	48,953.00	units
		Total Fixed Cost 48953 Units X 11.55 =	$       5,65,407.15
		Spare Capacity = Capacity to prodcue - Expected Production
		Spare Capacity = 52,291 Units - 48,953 units =	3338	Units
		Wholesaler required =	10135	Units
		Use from current sales=	6797	Units
		CALCULATION OF INCREAMENTAL PROFIT FROM ACCEPTING THE ORDERS
			Produce 48,953 Units	Produce 52,291 Units
		Sales to outsiders	$           33,77,757	$       29,08,764
			(48,953X $ 69)	(42,156 X $ 69)
		Sales to Wholersalers	$                          -	$         5,87,830
				(10,135 X $ 58)
		Total Sales	$           33,77,757	$       34,96,594
		Less: Variable Cost $34.45 per units	$     16,86,430.85	$ 18,01,424.95
		Contribution margin	$     16,91,326.15	$ 16,95,169.05
		Less: Fixed Manufacturing Overhead	$       5,65,407.15	$   5,65,407.15
		Net Profit	$     11,25,919.00	$ 11,29,761.90
		Differnce	$            -3,842.90
		Answer = There is increamental revenue of $ 3842.90 on accepting the offer