Reference no: EM132853761
One -Time Special Offer & Change in net income exercise
Reimer Company manufactures volleyballs. It has current capacity to produce 530,000 volleyballs. After 530,000, each additional 10,000 volleyballs increases fixed cost by $6,000 in a step fashion. The forecasted income statement for the year before any special order is as
Per
Amount Unit
Sales $5,000,000 $10.00
Manufacturing cost of goods sold 4,000,000 8.00
Gross profit 1,000,000 2.00
Selling expenses 400,000 .80
Operating income $ 600,000 $ 1.20
Fixed costs included in the above forecasted income statement are $1,000,000 in manufacturing cost of goods sold and $150,000 in selling expenses.
A special order was made by University of Saskatchewan offering to buy 70,000 volleyballs for $8.00 each from Reimer Co. There will be no variable selling expenses associated with the special order, as there will be no sales commission earned and the buyer will pick them up, so no shipping expense.
Because these 70,000 additional volleyballs will need Huskie logos, there will be an additional $1.00 direct material per volleyball for the special order.
(A) What is the variable manufacturing cost per unit of the special order?
(B) By what amount would operating income be increased (or decreased) as a result of accepting the special order by increasing capacity and fixed cost as necessary.
(C) What is the variable selling expense per unit in the current situation (before special order)?
(D) By what amount would operating income be increased (or decreased) as a result of accepting the special order by retaining current 530,000 volleyball capacity and foregoing just enough regular sales so as not to exceed capacity.