The Owens Company budgeted sales of 20,000 printers at $90 per unit last year.Variable manufacturing costs were budgeted at $46 per unit, and fixed manufacturing costs at $12 per unit.A special order for 1,000 printers at $72 each was received by Owens in April.There is enough plant capacity to meet these additional units without incurring any additional fixed manufacturing costs; however, the production would have to be done on an overtime basis at an estimated additional cost of $5 per printer.Acceptance of the special order would not affect Owens' normal sales and no selling expenses would be incurred.What would be increase to net operating income if the special order were accepted?

Question

Quizplus · Accepted Answer

The increase to net operating income if the special order were accepted is $21,000. This is calculated as follows:Additional revenue from special order: 1,000 units x $72 per unit = $72,000Additional variable manufacturing costs: 1,000 units x $46 per unit = $46,000Additional fixed manufacturing costs: 0 (since there is enough plant capacity to meet these additional units without incurring any additional fixed manufacturing costs)Additional overtime costs: 1,000 units x $5 per unit = $5,000Total additional costs: $46,000 + $5,000 = $51,000Increase to net operating income: $72,000 - $51,000 = $21,000

The Owens Company Budgeted Sales of 20,000 Printers at $90