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

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:
$$\begin{array} { | l | r | } \hline \text { Variable manufacturing overhead } & \$ 75,000 \\\hline \text { Fixed manufacturing overhead } & \$ 325,000 \\\hline \text { Direct labor-hours } & 25,000 \\\hline\end{array}$$
Management is considering a special order for 700 units of product Item 48 at $64 each.The normal selling price of product Item 48 is $75 and the unit product cost is determined as follows:
$$\begin{array} { | l | r | } \hline \text { Direct materials } & \$ 37.00 \\\hline \text { Direct labor } & 18.00 \\\hline \text { Manufacturing overhead applied } & 16.00 \\\hline \text { Unit product cost } & \$ 71.00 \\\hline\end{array}$$
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)