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    Company's Net Operating Income if Special Order is Accepted

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    Gallerani Corporation has received a request for a special order of 5,200 units of product A90 for $20.8 each. Product A90's unit product cost is $14.6, determined as follows:

    Direct materials $ 5.6
    Direct labor 4.2
    Variable manufacturing overhead 1.8
    Fixed manufacturing overhead 3
    Unit product cost $14.6

    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 A90 that would increase the variable costs by $3.7 per unit and that would require an investment of $24,000 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:

    ( $9,800)

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    Solution Summary

    This provides the steps to calculate the company's net operating income if special order is accepted