Question

g Question 3 At Springfield, the engraving department is a bottleneck, and the company is considering hiring an extra worker, whose salary will be $55,577 per year, to mitigate the problem. With the extra worker, the company will be able to produce and sell 7,700 more units per year. The selling price per unit is $13.00. Cost per unit currently is $7.69 as follows: Direct material $2.56 Direct labor 1.00 Variable overhead 0.23 Fixed overhead (primarily depreciation of equipment) 3.90 Total $7.69 Calculate the annual financial impact of hiring the extra worker. The annual net profit will by $ by hiring the extra worker.

Answer 1

Answer:

The net income will increase by $15,340 due to hiring of extra worker.

Explanation:

Salary of extra worker = $55,577

Extra production = 7,700 units

Selling price per unit = $13

Direct material per unit = $2.56

Direct labor per unit = $1.00

Variable overhead per unit = $0.23

Fixed overhead = $3.90. Due to extra production, fixed overhead will not increase.

Particulars                                       Amount

Sales revenue (7,700 * 13)             $100,100

Expenses:

Direct material (7,700 * $2.56)     -$19,712

Direct labor (7,700 * $1.00)           -$7,700

Variable overhead (7,700* 0.23)  -$1,771

Salary of extra worker                   -$55,577

Net income                                     $15,340

Thus, due to hiring of extra worker net income income will increase by $15,340