cost analysis of net operating income

timer Asked: Apr 23rd, 2015

Question description

Globe Manufacturing Company has just obtained a request for a special order of 12,000 units to be shipped at the end of the current year at a discount price of $7.00 each. The company has a production capacity of 90,000 units per year. At present, Globe is only selling 80,000 units per year through regular channels at a selling price of $11.00 each. Globe's per unit costs at an 80,000 unit level of production and sales are as follows:

Variable selling and administrative expense will drop to $0.30 per unit on the special order units. The special order has to be taken in its entirety. This means that by accepting the special order, Globe will be forced to not sell 2,000 units to its regular customers.

variable production cost...$4.60

Fixed production cost...$1.80

Variable selling and administration expense...$1.00

fixed selling and administration expense...$.45

Required: 30 PTS
If Globe accepts this special order, by what amount will its net operating income increase or decrease? SHOW YOUR COMPUTATIONS. 

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