Gallerani Corporation has received a request for a special order of 6,000 units of product A90 for $21.20 each. Product A90's unit product cost is $16.20, determined as follows: Assume that 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 modifications made to product A90 that would increase the variable costs by $4.20 per unit and that would require an investment of $21,000 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 for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:
A) ($18,600)
B) ($16,200)
C) $30,000
D) $5,400

Question

Gallerani Corporation has received a request for a special order of 6,000 units of product A90 for $21.20 each. Product A90's unit product cost is $16.20, determined as follows:  Assume that 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 modifications made to product A90 that would increase the variable costs by $4.20 per unit and that would require an investment of $21,000 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 for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:
A) ($18,600) 
B) ($16,200) 
C) $30,000 
D) $5,400

Quizplus · Accepted Answer

The Answer of Gallerani Corporation has received a request for a special order of 6,000 units of product A90 for $21.20 each. Product A90's unit product cost is $16.20, determined as follows:  Assume that 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 modifications made to product A90 that would increase the variable costs by $4.20 per unit and that would require an investment of $21,000 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 for producing the special order. The annual financial advantage (disadvantage) for the company as a result of accepting this special order should be:
A) ($18,600) 
B) ($16,200) 
C) $30,000 
D) $5,400

Gallerani Corporation Has Received a Request for a Special Order