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(TCO D) A customer has asked Clougherty Corporation to supply 4,000
units of product M97, with some modifications, for $40.10 each. The
normal selling price of this product is $48.00 each. The normal unit
product cost of product M97 is computed as follows.
Direct Materials 18.50
Direct Labor 1.20
Variable manufacturing overhead 8.40
Fixed manufacturing overhead 3.90
Unit product cost 32.00
Direct labor is a variable cost. The special order would have no
effect on the company’s total fixed manufacturing overhead costs. The
customer would like some modifications made to product M97 that would
increase the variable costs by $5.70 per unit and that would require a
one-time investment of $31,000 in special molds that would have no
salvage value. This special order would have no effect on the company’s
other sales. The company has ample spare capacity for producing the
special order.
Required:
Determine the effect on the company’s total net operating income of accepting the special order. Show your work!
