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The Huffman Corp: Change in Income

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Please help with the following accounting problem.

The Huffman Corporation manufactures a single product with the following full unit costs at a volume of 2,000 units:

Direct materials $ 400
Direct labor $ 160
Manufacturing overhead (30% variable) $ 300
Selling expenses (50% variable) $ 150
Administrative expenses (10% variable) $ 140
Total per unit $1,150

A company recently approached Huffman Corporation about buying 200 units for $850. Huffman currently sells the models to dealers for $1,300. Huffman Corporation's capacity is sufficient to produce the extra 200 units. No selling expenses would be incurred on the special order.

How much will income change if Huffman accepts the special order?

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Solution Preview

The relevant cost for the special order will be
Direct materials=$ 400
Direct labor=$ 160
Manufacturing overhead - Variable part only=30%*$ ...

Solution Summary

This solution analyzes the effects of accepting a special order by calculating the manufacturing overhead, selling price, profit per unit and increase in profit.

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