Wehrs Corporation has received a request for a special order of 9,400 units of product K19 for $46.90 each. The normal selling price of this product is $52.00 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product K19 is computed as follows: Direct materials $ 17.70 Direct labor 7.00 Variable manufacturing overhead 4.20 Fixed manufacturing overhead 7.10 Unit product cost $ 36.00 Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product K19 that would increase the variable costs by $6.60 per unit and that would require a one-time investment of $46,400 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample spare capacity for producing the special order. Required: Determine the effect on the company's total net operating income of accepting the special order.

Accepting the special order will result in increase in net operating income of  $60,760

Explanation:

For this question consider only the Incremental Costs and Revenues that will occur as a result of  accepting the special order

Note : The special order would have no effect on the company's total fixed manufacturing overhead costs, thus the fixed cost is irrelevant for this decision.

Incremental Costs and Revenues

Sales (9,400 units×$46.90)                                                      $440,860

Direct materials  (17.70 × 9,400 units )                                     ($166,380)

Direct labor (7.00  × 9,400 units )                                             ($65,800)

Variable Manufacturing overhead (4.20 × 9,400 units )         ($39,480)

Modifications (6.60  × 9,400 units )                                          ($62,040)

Investment in special molds                                                     ($46,400)

Incremental Income/(loss)                                                          $60,760

Accepting the special order will result in increase in net operating income of  $60,760

c.

clarify customers’ doubts only when asked.