The Melrose Corporation produces a single product, Product C.Melrose has the capacity to produce 70,000 units of Product C eachyear. If Melrose produces at capacity, the per unit costs toproduce and sell one unit of Product C are as follows:
Direct materials $20 Direct labor $17 Variable manufacturingoverhead $13 Fixed manufacturingoverhead $14 Variable selling expense $12 Fixed selling expense $8
The regular selling price of one unit of Product C is $100. Aspecial order has been received by Melrose from Moore Corporationto purchase 7,000 units of Product C during the upcoming year. Ifthis special order is accepted, the variable selling expense willbe reduced by 75%. Total fixed manufacturing overhead and fixedselling expenses would be unaffected except that Melrose will needto purchase a specialized machine to engrave the Moore name on eachunit of product C in the special order. The machine will cost$10,500 and will have no use after the special order is filled.Assume that direct labor is a variable cost.
Assume Melrose expects to sell 60,000 units of Product C to regularcustomers next year. If Moore company offers to buy the 7,000special units at $90 per unit, the effect of accepting the specialorder on Melrose's net operating income for next year will be:
$42,000 increase
$54,000 decrease
$105,000 increase
$248,500 increase
The Melrose Corporation produces a single product, Product C.Melrose has the capacity to produce 70,000 units of Product C eachyear. If Melrose produces at capacity, the per unit costs toproduce and sell one unit of Product C are as follows:
| Direct materials | $20 |
| Direct labor | $17 |
| Variable manufacturingoverhead | $13 |
| Fixed manufacturingoverhead | $14 |
| Variable selling expense | $12 |
| Fixed selling expense | $8 |
The regular selling price of one unit of Product C is $100. Aspecial order has been received by Melrose from Moore Corporationto purchase 7,000 units of Product C during the upcoming year. Ifthis special order is accepted, the variable selling expense willbe reduced by 75%. Total fixed manufacturing overhead and fixedselling expenses would be unaffected except that Melrose will needto purchase a specialized machine to engrave the Moore name on eachunit of product C in the special order. The machine will cost$10,500 and will have no use after the special order is filled.Assume that direct labor is a variable cost.
Assume Melrose expects to sell 60,000 units of Product C to regularcustomers next year. If Moore company offers to buy the 7,000special units at $90 per unit, the effect of accepting the specialorder on Melrose's net operating income for next year will be:
$42,000 increase
$54,000 decrease
$105,000 increase
$248,500 increase
