Todd Gurley Co. manufactures cups with Falcons designed on them. The following are the unit costs of
Question:
Todd Gurley Co. manufactures cups with Falcons designed on them. The following are the unit costs of making and selling an item at a volume of 10,000 units per month (which represents the company's capacity):
Per Unit | |
Manufacturing Costs: | |
Direct Materials | $1.25 |
Direct Labor | $1.80 |
Variable Manufacturing Overhead | $0.75 |
Fixed Manufacturing Overhead | $1.40 |
Selling and Administrative Costs: | |
Variable Selling Expense | $0.50 |
Fixed Administrative Expenses | $1.20 |
Currently, Todd Gurley Co. sells 9,200 units per month. An order has been received from a customer based in Atlanta for 800 units. Fixed costs, both manufacturing and selling and administrative are constant within the relevant range between 7,500 and 10,000 units per month. The variable selling and administrative costs would have to be incurred for this special order as well as all other sales. Assume direct labor is a variable cost.
How much will the company's operating income be increased or (decreased) if it prices the 800 units in the special order at $5.8 each?
Introduction to Management Accounting
ISBN: 978-0133058789
16th edition
Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta