Ellis Company makes boxed stationery and has capacity for 100,000 boxes. Currently, Ellis is producing 80,000 boxes. Information on price and costs is as follows:
Round intermediate calculations to the nearest cent. Use rounded answers in subsequent computations, if required.
Price.....................................................$2.48
Direct materials....................................$0.77
Direct labor............................................0.74
Variable overhead..................................0.17
Fixed overhead*....................................1.10
*Fixed overhead is based on capacity of 100,000 boxes.
A gift store chain recently came to Ellis Company and asked to have 10,400 boxes of stationery printed at a price of $1.92 per box. If Ellis Company accepts the special order, operating income will be $2,496 higher.
Now suppose that the gift store chain requires that a special imprinted seal must be put on each box. Direct materials will increase by $0.07 per box and Ellis can rent the machinery to imprint the seals for $2,149. If Ellis Company accepts the special order with this new requirement, operating income will be lower.