Elite Office Furniture received a special order for 1,200 units of its executive chairs at a selling price of $90 per chair. Elite Office Furniture has enough capacity to accept the order. No additional selling costs will be incurred

Unit costs to make and sell this product are as follows: Direct Materials $45; Direct Labor $19; Variable Manufacturing Overhead $6; Fixed Manufacturing Overhead $12; and Variable Selling Costs $5.

What will be Elite Office Furniture's change in operating income if they accept the special order? Should Elite Office Furniture accept the order? Explain why or why not.
What will be an ideal response?

Special offer volume 1,200
Special offer price $90.00
Additional revenue from order $108,000

Direct material $45.00
Direct labor $19.00
Variable manufacturing overhead $6.00
Total relevant costs $70.00
Special offer volume 1,200
Additional expenses from order $84,000

Additional revenue from order $108,000
Additional expenses from order $ (84,000 )
Increase in operating income $24,000

Yes, they should accept the order as it results in additional operating income since the company has the additional capacity.

Business

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