Question

Aloha Swimwear has received a special order for 3,250 bikinis at a price of $60 each. The regular average selling price is $75 per suit. The unit product cost is broken down as follows: direct labor, $8.50; direct materials, $15.75; variable overhead, $3.75; and fixed overhead, $5.25. Aloha already budgeted its production at 12,000 suits. If the company has spare capacity, what will be the incremental contribution of the special order to operating profit?
A : $104,000.00
B : $38,187.50
C : $86,937.50
D : $48,750.00

Answer 1

Answer:

The correct answer is A.

Explanation:

Giving the following information:

Aloha Swimwear has received a special order for 3,250 bikinis for $60 each.

Variable costs:

direct labor= $8.50

direct materials= $15.75

variable overhead= $3.75

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

Total variable cost per units= $28

The effect on income will equal the total contribution margin:

Total contribution margin= 3,250* 60 - 3,250*28= $104,000 increase