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Clougherty Corporation

# Clougherty Corporation - for producing the special order...

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A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some  modifications, for \$40.10 each. The normal selling price of this product is \$48.00 each. The  normal unit product cost of product M97 is computed as follows:  Direct Materials \$18.50 Direct Labor \$1.20 Variable Manufacturing Overhead \$8.40 Fixed Manufacturing Overhead \$3.90 Direct labor is a variable cost. The special order would have no effect on the company's total  fixed manufacturing overhead costs. The customer would like some modifications made to  product M97 that would increase the variable costs by \$5.70 per unit and that would require a  one-time investment of \$31,000 in special molds that would have no salvage value. This special  order would have no effect on the company's other sales. The company has ample spare capacity
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Unformatted text preview: for producing the special order. Required: Determine the effect on the company's total net operating income of accepting the special order. Show your work! (Points: 15) Calculation of Variable Expenses Direct Materials \$18.50 Direct Labor \$1.20 Variable Manufacturing Overhead \$8.40 Extra Variable Expenses \$5.70 Total Variable Costs \$33.80 Calculation of Product Margin Per Unit Sales Price \$40.10 Less: Total Variable Costs \$33.80 Product Margin Per Unit \$6.30 Calculation of the Effect on Net Operating Income Product Margin Per Unit \$6.30 Number of Units in Special Order 4,000 Total Special Order Revenue \$25,200 Less: Cost of Special Molds \$31,000 Effect on Net Operating Income (\$5,800)...
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