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Digital Devices, Incorporated has received a special order to manufacture 10,000 CD ROM drives for an Italian computer manufacturer. Digital determines that the order will not affect its current domestic sales of CD ROM drives and because of the special nature of the order no sales commission would be paid. However, to process the order for export, an additional handling cost of $10 per unit is estimated. The order indicates that the price of the drives cannot exceed $200. The company has the capacity to produce 100,000 units annually but is currently operating at 75% of available capacity. Unit selling price and costs, based on estimated actual capacity being utilized, are as follows: Selling price Expenses: Direct materials Direct labor $ 80 40 Variable manufacturing overhead 50 Fixed manufacturing overhead 30 26 Sales commission $ 260 Fixed administrative expenses Total 8 $ 234

Digital Devices, Incorporated has received a special order to manufacture 10,000 CD ROM drives for an Italian computer manufacturer. Digital determines that the order will not affect its current domestic sales of CD ROM drives and because of the special nature of the order no sales commission would be paid. However, to process the order for export, an additional handling cost of $10 per unit is estimated. The order indicates that the price of the drives cannot exceed $200. The company has the capacity to produce 100,000 units annually but is currently operating at 75% of available capacity. Unit selling price and costs, based on estimated actual capacity being utilized, are as follows: Selling price Expenses: Direct materials Direct labor $ 80 40 Variable manufacturing overhead 50 Fixed manufacturing overhead 30 26 Sales commission $ 260 Fixed administrative expenses Total 8 $ 234

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Digital Devices, Incorporated has received a special order to manufacture 10,000 CD ROM drives for an Italian computer manufacturer. Digital determines that the order will not affect its current domestic sales of CD ROM drives and because of the special nature of the order no sales commission would be paid. However, to process the order for export, an additional handling cost of $10 per unit is estimated. The order indicates that the price of the drives cannot exceed $200. The company has the capacity to produce 100,000 units annually but is currently operating at 75% of available capacity. Unit selling price and costs, based on estimated actual capacity being utilized, are as follows: Selling price Expenses: Direct materials Direct labor J $ 80 40 Variable manufacturing overhead 50 Fixed manufacturing overhead 30 Sales commission 26 8 $ 234 $ 260 Fixed administrative expenses Total
Transcribed Image Text:Digital Devices, Incorporated has received a special order to manufacture 10,000 CD ROM drives for an Italian computer manufacturer. Digital determines that the order will not affect its current domestic sales of CD ROM drives and because of the special nature of the order no sales commission would be paid. However, to process the order for export, an additional handling cost of $10 per unit is estimated. The order indicates that the price of the drives cannot exceed $200. The company has the capacity to produce 100,000 units annually but is currently operating at 75% of available capacity. Unit selling price and costs, based on estimated actual capacity being utilized, are as follows: Selling price Expenses: Direct materials Direct labor J $ 80 40 Variable manufacturing overhead 50 Fixed manufacturing overhead 30 Sales commission 26 8 $ 234 $ 260 Fixed administrative expenses Total
Required: 1. Prepare a relevant cost analysis showing the effect on profit if the company accepts the special order. 2. How would your analysis change if Digital Devices, Incorporated, was producing and selling 100,000 units annually? Required A Required B Sales Less relevant costs: G Prepare a relevant cost analysis showing the effect on profit if the company accepts the special order. Digital Devices, Incorporated Effect of Special Order on Profits Per Unit Direct materials Direct labor Variable manufacturing overhead Export handling cost ✔ Total
Transcribed Image Text:Required: 1. Prepare a relevant cost analysis showing the effect on profit if the company accepts the special order. 2. How would your analysis change if Digital Devices, Incorporated, was producing and selling 100,000 units annually? Required A Required B Sales Less relevant costs: G Prepare a relevant cost analysis showing the effect on profit if the company accepts the special order. Digital Devices, Incorporated Effect of Special Order on Profits Per Unit Direct materials Direct labor Variable manufacturing overhead Export handling cost ✔ Total
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