Northwestern University Operations And Supply Chain Management Assignment Help - The Varone Company

Question - The Varone Company makes a single product called a Hom. The company has the capacity to
produce 40,000 Homs per year. Per unit costs to produce and sell one Hom at that activity level are:

Direct materials $31
Direct labor $21
Variable manufacturing overhead $16
Fixed manufacturing overhead $18
Variable selling expense $10
Fixed selling expense $7

The regular selling price for one Hom is $100. A special order has been received at Varone from the
Fairview Company to purchase 7,900 Homs next year at 10% off the regular selling price. If this
special order were accepted, the variable selling expense would be reduced by 20%. However,
Varone would have to purchase a specialized machine to engrave the Fairview name on each Hom in
...Read More the special order. This machine would cost $11,900 and it would have no use after the special order
was filled. The total fixed costs, both manufacturing and selling, are constant within the relevant range
of 30,000 to 40,000 Homs per year. Assume direct labor is a variable cost.

If Varone can expect to sell 31,000 Homs next year through regular channels and the special order is
accepted at 10% off the regular selling price, the effect on net operating income next year due to
accepting this order would be a: ...Read Less

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