Question

Tunnel Incorporated provided the following information regarding its single product:

Direct materials used	$220,000
Direct labor incurred	$470,000
Variable manufacturing overhead	$150,000
Fixed manufacturing overhead	$100,000
Variable selling and administrative expenses	$55,000
Fixed selling and administrative expenses	$20,000

The regular selling price for the product is $80. The annual quantity of units produced and sold is 44,000 units (the costs above relate to the 44,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory.

What would be the effect on operating income of accepting a special order for 1050 units at a sale price of $43 per product? The special order units would not require any variable selling and administrative expenses. (Round any intermediary calculations to the nearest cent. Round your final answer to the nearest dollar.)

		Increase by $20,045
		Decrease by $23,956
		Increase by $23,956
		Decrease by $20,045

Answer 1