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

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:
$\begin{array}{llr} \text { Variable manufacturing overhead } &\$75,000\\ \text { Fixed manufacturing overhead } &\$325,000\\ \text { Direct labor-hour's } &25,000\end{array}$

Management is considering a special order for 700 units of product 48 at $64 each. The normal selling price of product 48 is $75 and the unit product cost is determined as follows:
$$\begin{array} { l r } \text { Direct materials } & \$ 37.00 \\\text { Direct labor } & 18.00 \\\text { Marufacturing overhead applied } & 16.00 \\\text { Unit product cost } & \$ 71.00\end{array}$$
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)