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Quick-Rite Company manufactures computers. The following cost information for the manufacture of one computer has been compiled. Direct materials $48 Direct labor 64 Variable manufacturing overhead 48 *Fixed manufacturing overhead 32 Total cost per unit $192 *The $32 amount reflects the amount of indirect cost allocated to each unit. However, as indicated, the total of these indirect costs is fixed. Quick-Rite has received a special order for 500 computers at a price of $175 per unit. By how much will overall company net income change if the order is accepted?

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Answer:

+$7,500

Explanation:

Lets organize the information first,

Direct Material = $48

Direct Labor = $64

Variable manufacturing = $48

Fixed Manufacturing overhead = $32

When considering special orders we normally only calculate profits via relevant or incremental costs.

The total relevant costs = 48+64+48 = $160

Total profit contribution towards company's fixed costs = 500*(175-160)

Profit contribution = $7,500

Hope that helps.