Winters Company is considering accepting a special order. Based on 10,000 units, the following costs are incurred by Winters: direct materials of $5, direct labor of $10, variable overhead of $8, and fixed overhead of $6. The wholesaler requesting the special order wants to only pay $25 for 2,000 units when the normal retail unit selling price is $50. If Winters accepts the special order, assuming it has sufficient capacity to fill the order, what amount of differential operating income (loss) would it recognize?
A) ($6,000)
B) $4,000
C) $20,000
D) $24,000

Question

Quizplus · Accepted Answer

Operating Income = Differential Revenue - Differential Costs = (2,000 special order units x $25 special order unit selling price) - [($5 + $10 + $8) x 2,000 special order units] = $50,000 - $46,000 = $4,000; or Unit Selling Price (Special Order) - Unit Variable Costs (Special Order) = Unit Contribution Margin (Special Order) = $25 - ($5 + $10 + $8) = $2 Unit Contribution margin x Special Order Units, 2,000 = $4,000

Winters Company Is Considering Accepting a Special Order