Figure 9-8
Walton Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: $\begin{array}{lr}
\text { Direct materials } & £ 12 \
\text { Direct labour } & 36 \
\text { Variable manufacturing overhead } & 18 \
\text { Fixed manufacturing overhead } & 24
\end{array}$ The company has the capacity to produce 90,000 units. The product regularly sells for £120.
-Refer to Figure 9-8. A wholesaler has offered to pay £110 a unit for 7,500 units. If the special order is accepted, the effect on operating income would be a

Question

Quizplus · Accepted Answer

To calculate the effect on operating income, subtract the total variable costs from the special order price and multiply by the number of units in the special order. Variable costs per unit are £12 (direct materials) + £36 (direct labour) + £18 (variable manufacturing overhead) = £66. The fixed manufacturing overhead will not change with the special order, as the company is already operating within its capacity. The special order price is £110, so the incremental income per unit is £110 - £66 = £44. For 7,500 units, the total effect on operating income is 7,500 units * £44 = £330,000. However, since none of the provided choices match this calculation, it's important to reassess the calculation or the interpretation of the choices given. Given the choices, the closest or most plausible choice based on the provided calculation method and the common understanding of cost accounting principles would be a mistake in the initial calculation or interpretation. Since the provided answer choices do not directly align with the recalculated outcome, and assuming a potential misstep in the recalculation or a misunderstanding of the question's requirements, the correct response based on the standard approach to such a scenario (variable costs subtracted from selling price, multiplied by the number of units) would ideally align with the expected increase in operating income due to accepting the special order. Without a direct match, the selection of the correct choice might involve recognizing an error in the calculation presented or a misinterpretation of the question's details.

Figure 9-8 Walton Company Manufactures a Product with the Following

Figure 9-8
Walton Company Manufactures a Product with the Following