Answer:
1a. Incremental net income $ 860,560
1b. Yes, the additional investment will be justified because the cost which is justified as incremental contribution is more than enough to cover for the incremental fixed selling expenses
1c. Breakeven cost for order $ 23.8
Explanation:
Calculation for the contribution margin per unit
Selling price per unit $ 60
Variable cost per unit as
Direct materials 7.50
Direct labor 10.00
Variable manufacturing overhead 1.90
Variable selling expenses 2.70
Total variable cost per unit 22.1
Contribution margin per unit $ 37.9
(60-22.1)
1a. Computation for the incremental operating income
Incremental contribution margin$ 1,000,560
(26,400 units*37.9)
Incremental fixed costs$ 140,000
Incremental net income $ 860,560
Incremental units = 114,400-88,000 = 26,400 units
1b. Yes, the additional investment will be justified because the cost which is justified as incremental contribution is more than enough to cover for the incremental fixed selling expenses.
1c. The breakeven price per unit will not include current fixed costs because the order will be only for the incremental costs of the units
Variable cost per unit as
Direct materials 7.50
Direct labor 10.00
Variable manufacturing overhead 1.90
Variable selling expenses (i.e. shipping cost only) 2
Import duties 1.70
Permits and licenses (18,480/26,400) 0.7
Breakeven cost for order $ 23.8
