The Fluffy Company manufactures slippers and sells them at $12 a pair. Variable manufacturing cost is 6.50 a pair, and allocated fixed manufacturing cost is $2.75 a pair. It has enough idle capacity available to accept a one-time-only special order of 35,000 pairs of slippers at 9.25 a pair. Fluffy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $96,250 increase, (c) $227,500 increase, or (d) $323,750 increase?
The Fluffy Company manufactures slippers and sells them at $12 a pair. Variable manufacturing cost is 6.50 a pair, and allocated fixed manufacturing cost is $2.75 a pair. It has enough idle capacity available to accept a one-time-only special order of 35,000 pairs of slippers at 9.25 a pair. Fluffy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $96,250 increase, (c) $227,500 increase, or (d) $323,750 increase?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
1. The Fluffy Company manufactures slippers and sells them at $12 a pair. Variable
Fluffy will not incur any marketing costs as a result of the special order. What would the effect on operating income be if the special order could be accepted without affecting normal sales: (a) $0, (b) $96,250 increase, (c) $227,500 increase, or (d) $323,750 increase?
2. The Company manufactures Part No. 498 for use in its production line. The manufacturing cost per unit for units of Part No. 498 is as follows:
Transcribed Image Text:### Data Table
**Direct Materials: $8**
**Variable Direct Manufacturing Labor: $22**
**Variable Manufacturing Overhead: $9**
**Fixed Manufacturing Overhead Allocated: $18**
**Total Manufacturing Cost per Unit: $57**
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**Explanation:**
The Counter Company has proposed to sell 30,000 units of Part No. 498 to Portland for $52 per unit. Portland will consider purchasing the part from Counter if there is an overall savings of at least $50,000. Should Portland accept Counter's offer, $12 per unit of the fixed overhead allocated would be eliminated. Furthermore, Portland has determined that the freed-up resources could be used to save relevant costs in the manufacture of Part No. 575.
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**Additional Information:**
The data table outlines the cost components for manufacturing a unit, detailing the incurred costs for direct materials, variable direct manufacturing labor, variable manufacturing overhead, and allocated fixed manufacturing overhead.
**Cost Breakdown Details:**
- **Direct Materials:** $8 per unit
- **Variable Direct Manufacturing Labor:** $22 per unit
- **Variable Manufacturing Overhead:** $9 per unit
- **Fixed Manufacturing Overhead Allocated:** $18 per unit
- **Total Manufacturing Cost per Unit:** $57
The decision to purchase or continue manufacturing will be influenced by potential cost savings and effective resource reallocation.
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