Pilgrim Corporation makes a range of products. The company's predetermined overhead rate is $23 per direct labor-hour,
Question:
Pilgrim Corporation makes a range of products. The company's predetermined overhead rate is $23 per direct labor-hour, which was calculated using the following budgeted data:
Variable manufacturing overhead ............. $200,000
Fixed manufacturing overhead .................. $375,000
Direct labor-hours ..................................... 25,000
Management is considering a special order for 800 units of product N89E at $69 each. The normal selling price of product N89E is $88 and the unit product cost is determined as follows:
Direct materials........................................... $28.00
Direct labor.................................................. 22.50
Manufacturing overhead applied................. 34.50
Unit product cost......................................... $85.00
If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units.
Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order.
Required:
If the special order were accepted, what would be the impact on the company's overall profit (prove it)?
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Step by Step Answer:
Managerial Accounting
ISBN: 9781259275814
11th Canadian Edition
Authors: Ray H Garrison, Alan Webb, Theresa Libby