Singleton Paddle Force (SPF) Ltd produces and supplies paddles for manufacturers of stand-up paddle boards. SPF produce a standard paddle that is included in stand-up paddleboard packages sold by other manufacturers. These paddles are not sold to the public individually. SPF produces and sells 70,000 units per month and the total cost each month isas follows:

Direct materials………………...………………..2,072,000

Direct labor …………………406,000

Variable manufacturing overhead...….. 175,000

Fixed manufacturing overhead………………….1,204,000

Variable selling and administrative expense…... 126,000

Fixed selling and administrative expense………. 469,000

The normal selling price of the product is $55 per unit. Aztec SUP has placed an order for 5.000 units to be delivered this month at a special discounted price, Aztec requires a use of a different material for the paddles and this would result in extra material costs of $20,000. This is in addition to the current direct material costs. Though a different material is being used, it does not affect the fixed manufacturing costs as the machine SPF has can be used for the different material as required by Aztec This order would have also have no effect on the company's normal sales nor SPF's fixed selling and administrative costs. The variable selling and administrative expense would be$1.20 less per unit on this order than on normal sales. Direct labour is a variable cost in this company.

Suppose there is sufficient idle capacity to produce the units required by Aztec SUP and the special discounted price on the special order is $44.50 per unit. By how much would this special order increase (decrease) the company's net operating income for the month?

Answer rating: 100% (QA)

Calculate the impact of the special order on Singleton Paddle Force SPF Ltds net operating income fo... View the full answer