Texas Company Produces and Sells 22,000 Units of a Single

question 120

Essay

Texas Company produces and sells 22,000 units of a single product.Costs associated with this level of production are as follows:
$\begin{array} { l } \text {Direct materials }&\$ 15 \text { per unit } \\ \text {Direct manufacturing labor }&\$ 45 \text { per unit } \\ \text {Variable manufacturing overhead }&\$ 25 \text { per unit } \\ \text { Fixed manufacturing overhead}&\$ 40 \text { per unit } \\ \text {Variable selling costs }&\$ 10 \text { per unit } \\\end{array}$

The product normally sells for $160 per unit.Texas Company has received a special order to sell 2,000 units at $120 per unit.With the special order,variable selling costs will increase by $5 per unit to $15 per unit.Texas Company has excess production capacity.
Required:
Compute the amount by which the operating income of Texas Company would change if the special order was accepted.

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Definitions:

Iterative Technique

An iterative technique refers to a process or method where a sequence of operations is repeated in order to approach closer to a desired result.

Planning Assumptions

Assumptions made regarding future events, conditions, and decisions that affect an organization's strategic planning and operations.

Dividend Payout Ratio

Dividend Payout Ratio is a financial metric that measures the proportion of a company's earnings paid out to shareholders in the form of dividends.

Retained Earnings

This refers to the cumulative amount of net income generated by a company that is reinvested in the business, minus any dividends paid out to shareholders.