The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 102,000 units of Product C each year. If Melrose produces at capacity, the per unit costs to produce and sell one unit of Product C are as follows: Direct materials $ 31.20 Direct labor $ 23.40 Variable manufacturing overhead $ 17.80 Fixed manufacturing overhead $ 22.00 Variable selling expense $ 15.20 Fixed selling expense $ 9.60 The regular selling price of one unit of Product C is $139.20. A special order has been received by Melrose from Moore Corporation to purchase 5,000 units of Product C during the upcoming year. If this special order is accepted, the variable selling expense will be reduced by 75%. Total fixed manufacturing overhead and fixed selling expenses would be unaffected except that Melrose will need to purchase a specialized machine to engrave the Moore name on each unit of product C in the special order. The machine will cost $9,900 and will have no use after the special order is filled. Assume that direct labor is a variable cost. Assume Melrose expects to sell 92,000 units of Product C to regular customers next year. If Moore company offers to buy the 5,000 special units at $129.20 per unit, the effect of accepting the special order on Melrose's net operating income for next year will be:.
a. $56,600 decrease
b. $44,600 increase
c. $255,100 increase
d. $107,000 increase
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The Melrose Corporation produces a single product, Product C. Melrose has the capacity to produce 10...
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