Harmony forge manufactures saddles for show horses. the company has received a special order for 290 saddles for an international competition. each of these saddles would include the specialized logo of the competition. last year harmony produced 710 saddles, and the company has the capacity to produce 1,000 saddles per year. harmony's saddles normally sell for $650 each, but the special offer is for $179,800 ($620 per saddle). the controller has provided information to management that estimates the variable cost per saddle is $435; fixed manufacturing overhead is $60/saddle. of the fixed costs assigned to this special order, $15,950 is for the specialized logos, the remainder is attributable to costs that will be incurred regardless of whether the special order is produced. what is the operating income generated by the special order?

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Business

Connor Harrell

29 July, 14:49

Harmony forge manufactures saddles for show horses. the company has received a special order for 290 saddles for an international competition. each of these saddles would include the specialized logo of the competition. last year harmony produced 710 saddles, and the company has the capacity to produce 1,000 saddles per year. harmony's saddles normally sell for $650 each, but the special offer is for $179,800 ($620 per saddle). the controller has provided information to management that estimates the variable cost per saddle is $435; fixed manufacturing overhead is $60/saddle. of the fixed costs assigned to this special order, $15,950 is for the specialized logos, the remainder is attributable to costs that will be incurred regardless of whether the special order is produced. what is the operating income generated by the special order?

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Jensen Pham · Answer 1

The operating income generated is equal to the total income generated minus the total costs of the goods for sale and any other operating costs. The total income generated is 179,800. The total cost per a saddle is 435 so this is 126,150 and the total overhead per saddle is $60 dollars per a saddle or $17,400 total. Thus the operating income generated is $36,250.