Snagless Corporation Has Received a Request for a Special Order

question 140

Essay

Snagless Corporation has received a request for a special order of 9,000 units of product ZX9 for $46.50 each. The normal selling price of this product is $51.60 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product ZX9 is computed as follows:
$$\begin{array} { l r } \text { Direct materials } & 17.30 \\\text { Direct labor } & 6.60 \\\text { Variable manuffacturing overhead } & 3.80 \\\text { Fixed manufacturing overhead } & 6.70 \\\text { Unit product cost } & \$ 34.40 \\\end{array}$$
Direct labor is a variable cost. The special order would have no effect on the company's total fixed manufacturing overhead costs. The customer would like some modifications made to product ZX9 that would increase the variable costs by $6.20 per unit and that would require a one-time investment of $46,000 in special molds that would have no salvage value. This special order would have no effect on the company's other sales. The company has ample capacity for producing the special order.
Required:
Determine the effect on the company's total net operating income of accepting the special order. Show your work!

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Definitions:

Significance Level

The probability of rejecting the null hypothesis when it is true, often denoted by alpha (α).

Chance

The occurrence of events in the absence of any deliberate intention or predictable causation, often used to describe random variability in data.

Confidence Interval

A range of values derived from sample data that is likely to contain the true population parameter with a certain level of confidence.

Statistically Significant

Indicates that an observed effect or result is unlikely to have occurred by chance, suggesting a real impact or difference that is not due to random variation.