Question

Lakeside Inc. produces a product that currently sells for $72.00 per unit. Current production costs per unit include direct materials, $27; direct labor, $29; variable overhead, $13.50; and fixed overhead, $13.50. Product engineering has determined that certain production changes could refine the product quality and functionality. These new production changes would increase material and labor costs by 20% per unit. Lakeside has received an offer from a nonprofit organization to buy 9,700 units at $70.30 per unit. Lakeside currently has unused production capacity.

Required:
a. Calculate the effect on Lakeside's operating income of accepting the order from the nonprofit organization.
_________Increase/Decrease of operating income of $_________

b. Should Lakeside accept this special sales order?

• Yes

• No

Answer 1

a)	Calculation of income from special order
	Revenue from special order	681,910	(9700*70.3)
	Less: Cost associated with special order
	Direct Material	314,280	(9700*27*(1.2))
	Direct Labour	337,560	(9700*29*(1.2))
	Variable overhead	130,950	(9700*13.5*)
	Decrease of operating income by $	(100,880)
b)	No