Problem
Rosie's manufactures silk flowers. ABC Company has approached Rosie's with a proposal to buy 2,000 silk flowers for $4.00 each. Regular customers are charged $4.25 for each flower. Rosie's has the necessary capacity. The following costs are associated annually with silk flowers with the company's normal production and sales of 10,000 flowers:
Direct material $21,000
Direct labor 13,000
Manufacturing overhead 9,000
Total $43,000
Forty percent of the manufacturing overhead is variable. All fixed overhead is allocated equally to all products produced.
Requirements: Prepare an incremental analysis schedule to demonstrate what amount operating income would increase or decrease as a result of accepting the special order.