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Homework answers / question archive / Vermillion Metal Works received an offer from a big-box retail company to purchase 3,060 metal outdoor tables for $220 each
Vermillion Metal Works received an offer from a big-box retail company to purchase 3,060 metal outdoor tables for $220 each. Vermillion Metal Works accountants determine that the following costs apply to the tables:
Direct material$133
Direct labor $51
Manufacturing overhead $ 71
Total$255
Of the $71 of overhead, $14 is variable and $57 relates to fixed costs. The $57 of fixed overhead is allocated as $1.12 per direct labor dollar.
Question:
What will be the real effect on profit if the order is accepted?
Increase or decrease and by how much__________?
Computation of the real effect on profit if the order is accepted:-
Increase or decrease in profit = (Special order price - Relevant Costs) * Number of special order units
= ($220 - ($133 + $51 + $14)) * 3,060
= ($220 - $198) * 3,060
= $22 * 3,060
= $67,320
Hence, the profit will increase by $67,320
