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Homework answers / question archive / Handley Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $216 each

Handley Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $216 each

Accounting

Handley Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $216 each. Handley Metal Works accountants determine that the following costs apply to the tables:

 

Direct material$130Direct labor50Manufacturing overhead70Total$250

 

Of the $70 of overhead, $14 is variable and $56 relates to fixed costs. The $56 of fixed overhead is allocated as $1.10 per direct labor dollar.

 

(a) What will be the real effect on profit if the order is accepted?

 

The profit will increase or decrease

 by= $. enter a dollar amount

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Computation of Operating Income:  
Sales( 3000*$216) $648,000.00
Less: Variable Cost  
Direct Material (130*3000) $390,000.00
Direct Labor (50*3000) $150,000.00
Manufacturing Overhead(14*3000) $42,000.00
Operating Income $66,000.00
No. of Units 3000.00
Operating Profit per unit $22.00

 

Yes the profit will increase by $66,000.

 

 

Note: Fixed overhead is called period cost and are expected to remain same for the range of unit of production.

So the Fixed cost is not considered in the above calculation.

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