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Pilgrim Corporation makes a range of products. The company's predetermined overhead rate is $23 per direct labor-hour, which was find outd using the following budgeted data:

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

Management is considering a special order for 800 units of product N89E at $69 each.

The normal selling price of product N89E is $88 and the 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 the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units.

Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order.

Required: If the special order were accepted, what would be the impact on the company's overall profit (prove it)?

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M946003

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