The Varone Company makes a single product called a Hom. The company has the capacity to produce 40,000 Homs p year. Per unit costs to produce and sell one Hom at that activity level are: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense $20 $10 $5 $7 $10 $8 C The regular selling price for one Hom is $60. A special order has been received at Varone from the Fairview Company to purchase 6,300 Homs next year at 20% off the regular selling price. If this special order were accepted, the variable selling expense would be reduced by 30%. However, Varone would have to purchase a specialized machine to engrave the Fairview name on each Hom in the special order. This machine would cost $10,800 and it would have no use after the special order was filled. The total fixed costs, both manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 Homs per year. Assume direct labor is a variable cost. If Varone can expect to sell 30,000 Homs next year through regular channels and the special order is accepted at 20% off the regular selling price, the effect on net operating income next year due to accepting this order would be a:
The Varone Company makes a single product called a Hom. The company has the capacity to produce 40,000 Homs p year. Per unit costs to produce and sell one Hom at that activity level are: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expense Fixed selling expense $20 $10 $5 $7 $10 $8 C The regular selling price for one Hom is $60. A special order has been received at Varone from the Fairview Company to purchase 6,300 Homs next year at 20% off the regular selling price. If this special order were accepted, the variable selling expense would be reduced by 30%. However, Varone would have to purchase a specialized machine to engrave the Fairview name on each Hom in the special order. This machine would cost $10,800 and it would have no use after the special order was filled. The total fixed costs, both manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 Homs per year. Assume direct labor is a variable cost. If Varone can expect to sell 30,000 Homs next year through regular channels and the special order is accepted at 20% off the regular selling price, the effect on net operating income next year due to accepting this order would be a:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Varone Company makes a single product called a Hom. The company has the capacity to produce 40,000 Homs per
year. Per unit costs to produce and sell one Hom at that activity level are:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Variable selling expense
Fixed selling expense
S
$20
$10
$5
$7
O $23,200 decrease
$27,000 Increase
$50,800 Increase
O $63,000 Increase
$10
$8
The regular selling price for one Hom is $60. A special order has been received at Varone from the Fairview
Company to purchase 6,300 Homs next year at 20% off the regular selling price. If this special order were
accepted, the variable selling expense would be reduced by 30%. However, Varone would have to purchase
a specialized machine to engrave the Fairview name on each Hom in the special order. This machine would
cost $10,800 and it would have no use after the special order was filled. The total fixed costs, both
manufacturing and selling, are constant within the relevant range of 30,000 to 40,000 Homs per year.
Assume direct labor is a variable cost.
If Varone can expect to sell 30,000 Homs next year through regular channels and the special order is
accepted at 20% off the regular selling price, the effect on net operating income next year due to accepting
this order would be a:
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