A Customer Has Asked Goes Corporation to Supply 6,000 Units

question 72

Essay

A customer has asked Goes Corporation to supply 6,000 units of product Y19, with some modifications, for $31.30 each. The normal selling price of this product is $46.50 each. The normal unit product cost of product Y19 is computed as follows: 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 Y19 that would increase the variable costs by $8.90 per unit and that would require a one-time investment of $20,000 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 spare 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:

CSL (Cycle Service Level)

An inventory management metric that measures the probability that the inventory level will not stock out within one replenishment cycle, typically expressed as a percentage.

Normally Distributed

Normally distributed refers to a statistical distribution where data is symmetrically distributed around the mean, forming a bell-shaped curve commonly seen in many natural and social phenomena.

Product Availability

The extent to which goods are in stock and readily accessible for purchase by consumers.

Measures

Quantitative or qualitative assessments used to evaluate performance, quality, or quantity of something.