Tullius Corporation Has Received a Request for a Special Order

question 10

Essay

Tullius Corporation has received a request for a special order of 8,000 units of product C64 for $50.00 each. The normal selling price of this product is $53.25 each, but the units would need to be modified slightly for the customer. The normal unit product cost of product C64 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 C64 that would increase the variable costs by $5.00 per unit and that would require a one-time investment of $43,000 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:

Resources

Inputs used in the production of goods and services, such as labor, capital, land, and entrepreneurship.

Marginal Rate

The rate at which one variable changes relative to a change in another variable, often used in the context of taxes or production costs.

Transformation

The process of changing something from one form or state to another, often seen in context with business, personal development, or technology.

Unemployment

The situation when people who are willing to work at prevailing wage rates cannot find employment.