4. woodson corporation provided the following information regarding its only product: sale price per unit $65.00 direct materials used $160,000 direct labor incurred $185,000 variable manufacturing overhead $120,000 variable selling and administrative expenses $70,000 fixed manufacturing overhead $65,000 fixed selling and administrative expenses $12,000 units produced and sold 10,000 assume no beginning inventory assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 1,200 units at a sale price of $60 per product assuming additional fixed manufacturing overhead costs of $5,000 is incurred? (note: assume regular sales are not affected by the special order.)

a. increase by $72,000

b. decrease by $2,800

c. increase by $7,800

d. increase by $2,800

B. Decrease by $2,800

Explanation:

Direct labor incurred $185,000  for 10,000 units, then it is $18.5 per unit

Direct materials used $160,000 for 10,000 units, then it is $16 per unit

Variable manufacturing overhead $120,000 for 10,000 units, then it is $12 per unit

Variable selling and administrative expenses $70,000 for 10,000 units, then it is $7 per unit

Additional revenue from accepting a special order is $72,000 = 1,200 units x sale price of $60

Additional fixed manufacturing overhead costs is $5,000

Additional variable cost $64,200 = 1,200 units x ($18.5+$16+$7+$12)

So net operating loss from special order is $2,800 = additional revenue of $72,000 – additional fixed cost of $5,000 - Additional variable cost of $64,000

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