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i. Prepare a report that shows the effect on the company's total net
operating income of buying part A55 from the supplier rather than
continuing to make it inside the company.
ii. Which alternative should the company choose?
Question 5. Question : (TCO D) A customer has asked Clougherty
Corporation to supply 4,000 units of product M97, with some
modifications, for $40.10 each. The normal selling price of this product
is $48.00 each. The normal unit product cost of product M97 is
computed as follows.
Direct Materials $18.50
Direct Labor $1.20
Variable manufacturing overhead $8.40
Fixed manufacturing overhead $3.90
Unit product cost $32.00
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 M97 that would
increase the variable costs by $5.70 per unit and that would require a
one-time investment of $31,000 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. Show your work!
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ACCT 505 Week 7 Course Project 2 Capital Budgeting
Decision (New)
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