Question

Cozy Products manufactures t-shirts. It has the following costs when its production level is 85,000 units (t-shirts): Click the icon to view the costs.) (Click the icon to view additional information.) What will happen to Cozy's operating income if it accepts this special order? Complete the following incremental analysis to determine the impact on Cozy's operating income if it accepts this special order. (Round all per unit amounts to the nearest cent, $X.XX, and all other amounts to the nearest whole dollar. Enter a "0" for any zero balances. Use parentheses or a minus sign to indicate a decrease in contribution margin and/or operating income from the special order.) Total Order (8,500 units) Per Unit Incremental Analysis of Special Sales Order Decision Revenue from special order Less variable expense associated with the order: Direct materials Direct labor Variable manufacturing overhead Contribution margin Less: Additional fixed expenses associated with the order Increase (decrease) in operating income from the special order

Answer 1

	Per unit	Total order (8500 units)
Revenue from special order	4.50	38250
Less variable expenses associated with the order:
Direct materials	2.85	24225
Direct labor	0.50	4250
Variable manufacturing overhead	1.10	9350
Contribution margin	0.05	425
Less: Additional fixed expenses associated with the order		0
Increase(decrease) in net operating from the special order		425
Workings:
	Per unit
Revenue from special order	4.50	=38250/8500
Less variable expenses associated with the order:
Direct materials	2.85	=(263500/85000)-0.25
Direct labor	0.50	=42500/85000
Variable manufacturing overhead	1.10	=93500/85000