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Net Operating Income

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LLC Corporation has received a request for a special order of $6,000 units of product Z50 for $21.20. Product Z50's unit product cost is $16.20, determine as follows:

Direct Materials ........... $6.10
Direct Labor ............... $4.20
Variable Manufacturing
Overhead ................... $2.30
Fixed Manufacturing Overhead $3.60
Unit Product Cost ...........$16.20
Direct Labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The costumer would like modifications made to product Z50 that would increase the variable costs by $4.20 per unit and that would require an investment of $21,000 in special molds that would have no savage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for productivity the special order. If the special order is accepted,the company's overall net operating income would increase (decrease) by:

a) ($18,600) I selected this answer
b) $5,400
c) $30,000
d) ($16,200)

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Total Current Variable Cost = $6.1 + $4.2 + $2.3 = $12.60

New Variable Cost = $12.60 + $4.2 = $16.80

Total Revenue ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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