Runner Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $240 each

Accounting Sep 01, 2020

Runner Metal Works received an offer from a big-box retail company to purchase 3,000 metal outdoor tables for $240 each. Runner Metal Works accountants determine that the following costs apply to the tables:

Direct material $130

Direct labor $60

Manufacturing overhead $91

Total $281

Of the $91 of overhead, $13 is variable and $78 relates to fixed costs. The $78 of fixed overhead is allocated as $1.30 per direct labor dollar.

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

Expert Solution

Computation of the profit will increase/decrease by:-

Variable cost per unit = Direct materials + Direct labor + Variable overhead

= $130 + $60 + $13

= $203 per unit

Profit increase by = (sales price per unit - Variable cost per unit) * Number of units

= ($240 - $203) * 3,000

= $37 * 3,000

= $111,000

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