Reference no: EM133342620

Differential Analysis #1 - TARDIS Corporation

The TARDIS Corporation produces and sells a single product--Sonic Screwdrivers. TARDIS has the capacity to produce 100,000 Sonic Screwdrivers each year. If TARDIS produces at capacity, the per unit costs to produce and sell one Sonic Screwdriver are as follows:

Direct materials	$8
Direct labor	$24
Variable overhead	$7
Fixed overhead	$3
Variable selling expense	$2
Fixed selling expense	$5

The regular selling price for one Sonic Screwdriver is $79. A special order has been received by TARDIS from Davros Corporation to purchase 1,300 Sonic Screwdrivers next year. If this special order is accepted, assume that the firm would incur all variable manufacturing costs (DM, DL, Variable OH) and the variable selling expense of $2 per unit to make the special order units. Additionally, TARDIS will have to purchase a specialized machine to engrave the Davros name on each Sonic Screwdriver in the special order. This machine will cost $5,800 and it will have no use or resale value after the special order is filled. Besides the cost of the special machine, all other fixed costs, including fixed overhead costs and fixed selling expenses, would be unaffected by this special order.

Assume TARDIS anticipates selling 95,000 Sonic Screwdrivers to regular customers next year. Since TARDIS's capacity is 100,000 Sonic Screwdrivers, it would have the capacity to fulfill this special order of 1,300 units for Davros without affecting regular sales.

If Davros Corporation offers to buy the special-order units at $52 per unit, calculate the effect on TARDIS's profit as a whole if the firm accepts this special order.