Horton Corporation Makes a Range of Products Management Is Considering a Special Order for 700 Units of Rate

question 90

Essay

Horton Corporation makes a range of products.The company's predetermined overhead rate is $16 per direct labor-hour,which was calculated using the following budgeted data:
$$\begin{array} { | l | r | } \hline \text { Variable manufacturing overhead } & \$ 75,000 \\\hline \text { Fixed manufacturing overhead } & \$ 325,000 \\\hline \text { Direct labor-hours } & 25,000 \\\hline\end{array}$$
Management is considering a special order for 700 units of product Item 48 at $64 each.The normal selling price of product Item 48 is $75 and the unit product cost is determined as follows:
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 37.00 \\\hline \text { Direct labor } & 18.00 \\\hline \text { Manufacturing overhead applied } & 16.00 \\\hline \text { Unit product cost } & \$ 71.00 \\\hline\end{array}$$
If the special order were accepted,normal sales of this and other products would not be affected.The company has ample excess capacity to produce the additional units.Assume that direct labor is a variable cost,variable manufacturing overhead is really driven by direct labor-hours,and total fixed manufacturing overhead would not be affected by the special order.Required:
If the special order were accepted,what would be the impact on the company's overall profit? (CIMA adapted)

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Definitions:

Accommodation

The act of adjusting or adapting one's actions, decisions, or opinions to accommodate or meet the needs of others.

Intangibles

Non-material factors that can influence negotiations, such as reputation, relationships, or principles.

Bargaining mix

The range of topics, issues, or objectives that parties negotiate and discuss in an attempt to reach an agreement.

Avoidance strategy

A method chosen to sidestep potential problems, conflicts, or risks by staying away from certain actions or decisions.