The following information relates to a product produced by Harmony Manufacturing: Direct materials $17 Direct labor $12 Variable overhead $9 Fixed overhead Unit cost $14 $52 Fixed selling costs are $1,200,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation cost. Although production capacity is 600,000 units per year, Harmony expects to produce only 450,000 units next year. The product normally sells for $65 each. A customer has offered to buy 80,000 units for $45 each. The customer will pay the transportation charge on the units purchased. If Harmony accepts the special order, the effect on income would be a

The following information relates to a product produced by Harmony Manufacturing: Direct materials $17 Direct labor $12 Variable overhead $9 Fixed overhead Unit cost $14 $52 Fixed selling costs are $1,200,000 per year. Variable selling costs of $4 per unit sold are added to cover the transportation cost. Although production capacity is 600,000 units per year, Harmony expects to produce only 450,000 units next year. The product normally sells for $65 each. A customer has offered to buy 80,000 units for $45 each. The customer will pay the transportation charge on the units purchased. If Harmony accepts the special order, the effect on income would be a

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 54P

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Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all 30,000 for $240 each. Country Enterprises has approached Dimitri to buy 800 chairs for $210 each. Dimitris normal variable cost is $165 per chair, including $50 per unit in direct labor per chair. Dimitri can produce the special order on an overtime shift, which means that direct labor would be paid overtime at 150% of the normal pay rate. The annual fixed costs will be unaffected by the special order and the contract will not disrupt any of Dimitris other operations. What will be the impact on profits of accepting the order?
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