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Managerial Accounting

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Coats Inc.: Special Order Selling Costs Change in Profits

MGRACT-V@H9BP

Coats Inc. received at order for 1,000 units from a new customer and they have idle capacity enough to make these units without interfering with normal orders. They are willing to pay $20 per unit. The manufacturing costs for the recent period shows:

Manufacturing costs of 100,000 parts:
Direct Materials \$500,000
Direct Labor \$250,000
Variable Manufacturing Overhead \$500,000
Fixed Manufacturing Overhead \$1,000,000
Total cost \$2,250,000

The shipping costs are estimated to be \$2.00 per unit and the sales commission, normally 12% of sales would be 10% of sales.

What is the impact on Coat's profits if they accept and make this order?