Question - Val Company currently has the capacity to manufacture 250,000 widgets a year. The widgets normally sell for $8.00 each.
Val Company has the following costs related to manufacturing and selling 200,000 widgets:
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Direct materials
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$300,000
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Direct labor
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$540,000
|
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Variable manufacturing overhead
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$180,000
|
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Depreciation on equipment only used for the widgets
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$40,000
|
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Depreciation on factory
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$100,000
|
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Salary of widget production manager
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$70,000
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Variable selling costs (commissions)
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$60,000
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Fixed selling costs
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$80,000
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Total
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$1,370,000
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Assume Minot Inc. asks Val to complete a manufacture a special order of 10,000 widgets. Minot is willing to pay $5.50 per widget (and the sales commission will apply on this special order).
By how much will Vals income change if they accept the special order?