Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. Lost Mine has offered to buy 2,800 of the US umbrellas at a price of $26 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella: Direct materials $ 11.00 Direct labor 6.00 Variable manufacturing overhead 7.50 Fixed manufacturing overhead 2.50 Total cost $ 27.00 Regular sales price $ 34.00 Required: 1. Compute the incremental profit (or loss) from accepting the special order. 2. Should Mohave accept the special order

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lilkid5887 lilkid5887

03-03-2020
Business

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Mohave Corp. makes several varieties of beach umbrellas and accessories. It has been approached by a company called Lost Mine Industries about producing a special order for a custom umbrella called the Ultimate Shade (US). The special-order umbrellas with the Lost Mine Company logo would be distributed to participants at an upcoming convention sponsored by Lost Mine. Lost Mine has offered to buy 2,800 of the US umbrellas at a price of $26 each. Mohave currently has the excess capacity necessary to accept the offer. The following information is related to the production of the US umbrella: Direct materials $ 11.00 Direct labor 6.00 Variable manufacturing overhead 7.50 Fixed manufacturing overhead 2.50 Total cost $ 27.00 Regular sales price $ 34.00 Required: 1. Compute the incremental profit (or loss) from accepting the special order. 2. Should Mohave accept the special order

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AmmarAwais AmmarAwais · Answer 1 · 2020-03-03T11:05:50+01:00

Answer:

The incremental profit is $4,200. Mohave should accept this order.

Explanation:

(1) Variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead

Variable cost per unit = $11 + $6 + $7.5 = $24.5

Incremental profit = (Sale price per unit - Variable cost per unit) x Units sold

Incremental profit = ($26 - $24.5) x 2,800 = $4,200

(2) Mohave should accept the special order because it is resulting in a profit for the business. We are also informed that Mohave has the excess capacity necessary to accept the order. Hence, no additional fixed costs are incurred in accepting the order, implying that it is overall a profitable transaction for Mohave which it should accept.

Tundexi Tundexi · Answer 2 · 2022-03-29T15:02:26+02:00

The Corporation should accept the special order because the special order will results to a profit of $4,200 for the business.

What is the Variable cost per unit?

= Direct materials + Direct labor + Variable manufacturing overhead

= $11 + $6 + $7.5

= $24.5

What is the Incremental profit?

= (Sale price per unit - Variable cost per unit) x Units sold

= ($26 - $24.5) x 2,800

= $4,200

In conclusion, the Corporation should accept the special order because the special order will results to a profit of $4,200 for the business.