406 acc midterm 2 q3

Question No. 3 (a)

6

Marks

Solution
The following financial data apply to the DVD production plant of ABC
Company for the month of July:

Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total manufacturing costs

Budgeted Costs per DVD
$
1.500
$
0.800
$
0.700
$
1.000
$
4.000

Variable manufacturing overhead varies with respect to units produced.
Fixed manufacturing overhead as per above financial date is based on the followings:
Budgeted production
Fixed manufacturing overhead per month

150,000.00
$ 150,000.00

Other financial data:
Sale price per unit
Variable marketing costs
Fixed marketing costs

$
$

5.000
5.00% of dollar sales
65,000.00 per month

A special order was received during the month from a customer not in its normal marketing channels. Details of the special order are as follows:
Sale price
Quantity of the special order
a)

$

3.800
1,000.00

Required:
Compute the change of monthly operating income of accepting the special order?
Step 1
Compute the monthly income without special order.
Sale
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable marketing costs
Fixed marketing costs
Monthly operating income

$
$
$
$
$
$
$
$

750,000.00
225,000.00
120,000.00
105,000.00
150,000.00
37,500.00
65,000.00
47,500.00

(Sale price per unit * Budgeted production)
(Direct materials cost per unit * Budgeted production)
(Direct labor cost per unit * Budgeted production)
(Variable manufacturing overhead per unit * Budgeted production)
Fixed manufacturing overhead per month
(Total sale price * Variable marketing cost %)
Fixed marketing costs per month

Sale revenue of regular order
Sale revenue of special order
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable marketing costs
Fixed marketing costs
Monthly operating