Vaden CompanyDecision of special order

Vaden CompanyDecision of special order

1.Vaden Company produces a single product. The cost of producing and selling a single unit of this product at the companys normal activity level of 50,000 units per month is as follows:Direct materials$32.50Direct labor 7.20Variable manufacturing overhead 1.30Fixed manufacturing overhead 20.90Variable selling & administrative expense 1.90Fixed selling & administrative expense 7.30The normal selling price of the product is $75.00 per unit. An order has been received from an overseas customer for 3,000 units to be delivered this month at a special discounted price. This order would have no effect on the companys normal sales price and would not change the total amount of the companys fixed costs. The variable selling and administrative expense would be $0.30 less per unit on this order than on normal sales.Direct labor is a variable cost in this company.Required (10 points):a.Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $65.60 per unit. By how much would this special order increase (decrease) the companys net operating income for the month?b.Suppose the company is already operating at capacity when the special order is received from the overseas customer. What would be the opportunity cost of each unit delivered to the overseas customer?


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