Reference no: EM132951166
Samia Ltd. produces jewelry boxes and one of their products has the following selling price and costs:
Description Dollar value per unit
Selling price $65.00
Direct materials$13.00
Direct labour$11.70
Variable overhead $10.40
Fixed overhead $9.10
Sales commission$3.25
Income per unit$17.55
The company also have some non-manufacturing fixed costs (such as sales and administration costs). They have provided the following details:
Capacity (units) 28,000
Current production (units) 22,400
Fixed non-manufacturing costs (annual)$98,280
Zunish Ltd. is a new one-time customer who has offered to buy the following jewelry boxes:
Total units required 4,200.
Purchase price per unit$37.00.
Transportation costs / unit$1.60
Zunish Ltd. has agreed to pay the transportation costs. In addition, because no sales person was involved, there will be no sales commission paid on the sale to Zunish Ltd.
Required:
Problem 1: If Samia Ltd. accepts this order, will operating income increase, decrease or stay the same?
Problem 2: By how much will operating income change if the order is accepted?
Problem 3: Assume, INSTEAD, that the order from Zunish Ltd. was obtained through a sales person so sales commission has to be paid. In addition, Zunish Ltd. has asked Samia Ltd. to pay all transportation costs. Given this new information, will Samia's operating income increase, decrease or stay the same?
Problem 4: Given this new information, by how much will operating income change if the order was accepted now?
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