The Parton Company Has Gathered the Following Information for a Unit

question 2

Essay

The Parton Company has gathered the following information for a unit of its most popular product:
$$\begin{array} { l r } \text { Direct materials } & \$ 20 \\\text { Direct labor } & 15 \\\text { Overhead (60\% variable) } & 20 \\\text { Cost to manufacture } & \$ \mathbf { 5 5 } \\\end{array}$$
The above cost information is based on 10,000 units. Parton currently sells 8,500 units for $62 per unit. A distributor has offered to buy 1,000 units at a price of $50 per unit. This special order would not disturb regular sales.
Required:
a. Calculate Parton's change in operating profits if the special order is accepted.
b. How many units of regular sales could be lost before this contract is not profitable?

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Definitions:

Predetermined Overhead Rate

An estimated rate used to assign manufacturing overhead costs to individual units of production.

Machine-Hours

A measure of the amount of time machines are operated, used as a basis for allocating manufacturing overhead costs in production.

Variable Manufacturing Overhead

Refers to the costs that vary with the level of production output, including items such as indirect materials and electricity to run machinery.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products or job orders, calculated before the accounting period begins based on an estimate.