Question

The following information relates to a product produced by Orca Company: Direct materials $ 56 Direct labor 32 Variable overhead 30 Fixed overhead 34 Unit cost $ 152 Fixed selling costs are $2,800,000 per year. Although production capacity is 590,000 units per year, Orca expects to produce only 472,000 units next year. The product normally sells for $170 each. A customer has offered to buy 60,180 units for $150 each. The customer will pay the transportation charge on the units purchased. If Orca accepts the special order, the effect on operating profits would be a:

Answer 1

The effect on operating profits would be a $1,925,760 increase

Step-by-step explanation:

A customer offer to buy at $150 each

Direct material cost $56

Direct labor 32

Variable overhead 30

Fixed overhead 34

unit cost $152

therefore

= 150 - (56+32+30)

= $32

Total unit to buy = 60,180

`= 32* 60,180 = $1,925,760 increase`

the selling price need not to be included as customer pay for them

Answer 2

The effect on operating profits would be a $1,925,760 increase

Step-by-step explanation:

The computation of the effect on the operating profits is shown below:

= (Offered buying price - Direct materials per unit cost - Direct labor per unit - Variable overhead per unit) × offered units

= ($150 - $56 - $32 - $30) × 60,180 units

=$32 per units × 60,180 units

= $1,925,760 increase

The fixed cost per unit would not be considered in the computation part.