Southern Digital,Inc.
The Southern Digital,Inc.produces a high-quality computer chip.Unit production costs (based on capacity production of 100,000 units per year)follow:
Direct material $50
Directlabor 20
Overhead(20% variable) 10
Other information:
Sales price 100
SG\&A costs(40% variable) &nbsp15

Refer to Southern Digital,Inc.Assume,for this question only,that the Memory Division is presently operating at a level of 80,000 chips per year.Accepting a "special order" on 2,000 chips at $88 will

Question

Southern Digital,Inc.
The Southern Digital,Inc.produces a high-quality computer chip.Unit production costs (based on capacity production of 100,000 units per year)follow:
Direct material                               $50
Directlabor                                      20
Overhead(20% variable)                10
Other information:
Sales price                                      100
SG\&A costs(40% variable)           &nbsp15

Refer to Southern Digital,Inc.Assume,for this question only,that the Memory Division is presently operating at a level of 80,000 chips per year.Accepting a "special order" on 2,000 chips at $88 will

Quizplus · Accepted Answer

To calculate the impact of the special order, we need to calculate the incremental revenue and incremental costs of producing the additional 2,000 chips.

Incremental revenue:

2,000 chips x $88/chip = $176,000

Incremental costs:

Direct materials: 2,000 x $50 = $100,000
Direct labor: 2,000 x $20 = $40,000
Variable overhead: 2,000 x $2 (20% of $10) = $4,000
SG&A: 2,000 x $6 (40% of $15) = $12,000

Total incremental costs = $156,000

Incremental profits:

$176,000 - $156,000 = $20,000

Therefore, accepting the special order will increase total corporate profits by $20,000.

Southern Digital,Inc. The Southern Digital,Inc.produces a High-Quality Computer Chip.Unit Production Costs (Based