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Direct labor is a variable cost

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Rojo Corporation has received a request for a special order of 8,000 units of product W68 for $27.20 each. Product W68's unit product cost is $18.50, determined as follows:

Direct material............................................................ 2.20
Direct labor................................................................. 7.90
Variable manufacturing over head............................. 1.50
Fixed manufacturing overhead................................... 6.90
Unit product cost....................................................... 18.50

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 modifications made to product W68 that would increase the variable costs by $7.90 per unit and that would require an 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. If the special order is accepted, the company's overall net operating income would increase (decrease) by:

Reference no: EM13992680

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