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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. 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
Expert Solution
| 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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