Question

Nina Company has provided the following information:

Direct material	$20.00
Direct labor	$17.00
Variable manufacturing overhead	$15.00
Fixed manufacturing overhead	$10.00
Variable administrative expense	$5.00
Fixed administrative expense	$2.00

Nina normally produces 8,000 units and sells these units at $100 per unit. A national discount box store has contacted the company about ordering 1,000 units that would be manufactured in a slightly different way and would save the company $3.00 per unit in direct materials. Nina has excess capacity and this order would not affect normal production The special order would not change Nina's fixed costs. The special order would have a unit price of $70.

The special order would increase (decrease) Nina's net operating income by _______.

You must format you answer as follows: $x,xxx (for an increase in net operating income)

$(x,xxx) (for a decrease in net operating income)

Answer 1

Increase in revenue (1000*70)............70000

Less: increased variable expenses:

Direct materials(1000*17) 17000

Direct labor (1000*17) 17000

Variable manufacturing overhead (1000*15) 15000

Variable administrative expenses (1000*5) 5000

Total increased variable expenses................. (54000)

Increased contribution margin..... 16000

Less: increased fixed expenses

Fixed manufacturing overhead (1000*10) 10000

Fixed administrative expenses (1000*2) 2000

Total increased fixed expenses.............................. (12000)

Increase in net operating income........................... $4,000