Question

Wiacek Corporation has received a request for a special order of 4,300 units of product F65 for $26.90 each. Product F65's unit product cost is $26.40, determined as follows:

Direct materials	$2.55
Direct labor	7.85
Variable manufacturing overhead	6.95
Fixed manufacturing overhead	9.05
Unit product cost	$26.40

Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like modifications made to product F65 that would increase the variable costs by $3.30 per unit and that would require an investment of $22,000 in special molds that would have no salvage value.

This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

Answer 1

If the special order is accepted, the company's overall net operating income would (decrease) by $34,040

Unit Product Cost	$26.40
Add : Additional variable cost	$3.30
Total unit product cost	$29.70
Unit selling price	$26.90
Less : Total unit product cost	($29.70)
Contribution per unit	($2.80)
Contribution per unit	($2.80)
Order Received	4,300 Units
Total Contribution [ 4,300 x $2.80 ]	($12,040)
Less : Investments in Special Molds	($22,000)
Incremental Net Operating (Loss)	($34,040)