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Pilsbury Corporation produces range of products. Company's predetermined overhead rate is $23 per direct labour-hour, that was computed using budgeted data given below:

Variable manufacturing overhead $200,000
Fixed manufacturing overhead $375,000
Direct labor-hours 25,000

Management is thinking of a special order for 800 units of product N89E at $69 each. Normal selling price of product N89E is $88 and unit product cost is determined as follows:

Direct materials $28.00
Direct labor 22.50
Manufacturing overhead applied 34.50
Unit product cost $85.00

If special order were accepted, normal sales of this and other products would not be affected. Company has ample excess capacity to make the extra units. Suppose that direct labour is variable cost, variable manufacturing overhead is actually driven by direct labour-hours, and entire fixed manufacturing overhead would not be affected by special order.

problem:

If special order were accepted, determine the impact on company's overall profit?

Business Management, Management Studies

  • Category:- Business Management
  • Reference No.:- M931408

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