Customer has asked that Inga Corporation fill the special order for 2,000 units of product K81 for $40.00 a unit. While product would be altered slightly for special order, product K81's normal unit product cost is $18.30:
Direct Materials............................. $4.40
Direct Labor............................... 6.00
Variable Manufacturing Overhead ..... 1.50
Fixed Manufacturing Overhead.......... 6.40
Unit Product Cost........................... $18.30
Direct labor is the variable cost. Special order would have no effect on company's total fixed manufacturing overhead costs. Customer would like alteration made to product K81 which would increase variable costs by $2.10 per unit and that need the investment of $14,000 in special molds which would have no salvage value.
This special order would have no effect on company's other sales. Company has plenty of spare capacity for producing special order. If special order is accepted, company's overall net operating income would increase (decrease) by:
i) $(13,700)
ii) $14,200
iii) $38,000
iv) $(1,800)