Holtrop Corporation has received a request for a special orderof 9,400 units of product Z74 for $46.90 each. The normal sellingprice of this product is $52.00 each, but the units would need tobe modified slightly for the customer. The normal unit product costof product Z74 is computed as follows:
Directmaterials $17.70 Direct labor 7.00 Variablemanufacturing overhead 4.20 Fixed manufacturingoverhead 7.10 Unit productcost $36.00
Direct labor is a variable cost. The special order would have noeffect on the company's total fixed manufacturing overhead costs.The customer would like some modifications made to product Z74 thatwould increase the variable costs by $6.60 per unit and that wouldrequire a one-time investment of $46,400 in special molds thatwould have no salvage value. This special order would have noeffect on the company's other sales. The company has ample sparecapacity for producing the special order.
Required: Determine the effect on the company's the incremental netoperating income of accepting the special order. (Omit the"$" sign in your response.)
Incremental net operating income
..................................................................................................................................................
Nicklin Corporation is considering two alternatives, code-namedM and N. Costs associated with the alternatives are listedbelow:
Alternative M Alternative N Supplies costs $ 57,000 $ 51,000 Power costs $ 32,000 $ 32,000 Inspectioncosts $ 12,000 $ 18,500 Assembly costs $ 25,000 $ 14,000
Required:
a. Which costs are relevant and which are not relevant in thechoice between these two alternatives?
Supplies costs (Click toselect)RelevantNot relevant Power costs (Click toselect)Not relevantRelevant Inspectioncosts (Click toselect)Not relevantRelevant Assembly costs (Click toselect)RelevantNot relevant
b. What is the differential cost between Alternative M andAlternative N? (Enter your answer as a negative amount witha minus sign. Omit the "$" sign in your response.)
Differentialcost $
$
Holtrop Corporation has received a request for a special orderof 9,400 units of product Z74 for $46.90 each. The normal sellingprice of this product is $52.00 each, but the units would need tobe modified slightly for the customer. The normal unit product costof product Z74 is computed as follows: |
| Directmaterials | $17.70 |
| Direct labor | 7.00 |
| Variablemanufacturing overhead | 4.20 |
| Fixed manufacturingoverhead | 7.10 |
| Unit productcost | $36.00 |
Direct labor is a variable cost. The special order would have noeffect on the company's total fixed manufacturing overhead costs.The customer would like some modifications made to product Z74 thatwould increase the variable costs by $6.60 per unit and that wouldrequire a one-time investment of $46,400 in special molds thatwould have no salvage value. This special order would have noeffect on the company's other sales. The company has ample sparecapacity for producing the special order. |
| Required: |
Determine the effect on the company's the incremental netoperating income of accepting the special order. (Omit the"$" sign in your response.) |
| Incremental net operating income ..................................................................................................................................................
| $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
Related questions
Holtrop Corporation has received a request for a special orderof 9,600 units of product Z74 for $47.10 each. The normal sellingprice of this product is $52.20 each, but the units would need tobe modified slightly for the customer. The normal unit product costof product Z74 is computed as follows: |
| Directmaterials | $17.90 |
| Direct labor | 7.20 |
| Variablemanufacturing overhead | 4.40 |
| Fixed manufacturingoverhead | 7.30 |
| Unit productcost | $36.80 |
Direct labor is a variable cost. The special order would have noeffect on the company's total fixed manufacturing overhead costs.The customer would like some modifications made to product Z74 thatwould increase the variable costs by $6.80 per unit and that wouldrequire a one-time investment of $46,600 in special molds thatwould have no salvage value. This special order would have noeffect on the company's other sales. The company has ample sparecapacity for producing the special order. |
| Required: |
Calculate the incremental net operating income of accepting thespecial order. (Omit the "$" sign in yourresponse.) |
| Incremental netoperating income | $ |
A customer has requested that Inga Corporation fill a specialorder for 2,800 units of product K81 for $33 a unit. While theproduct would be modified slightly for the special order, productK81's normal unit product cost is $23.30: |
| Directmaterials | $ 6.40 |
| Direct labor | 5.00 |
| Variablemanufacturing overhead | 3.50 |
| Fixed manufacturingoverhead | 8.40 |
| Unit productcost | $23.30 |
Direct labor is a variable cost. The special order would have noeffect on the company's total fixed manufacturing overhead costs.The customer would like modifications made to product K81 thatwould increase the variable costs by $2.00 per unit and that wouldrequire an investment of $18,000 in special molds that would haveno salvage value. |
This special order would have no effect on the company's othersales. The company has ample spare capacity for producing thespecial order. If the special order is accepted, the company'soverall net operating income would increase (decrease) by: |
$27,080
$(17,700)
$18,200
$(2,600)
