Question

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 2,000 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4,000 in order to stamp the foreign company’s name on the product. The incremental income (loss) from accepting the order is

Answer 1

Answer:

Increase in  income= 2,000

Explanation:

Giving the following information:

Unit cost behavior, based on 10,000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6. A foreign company wants to purchase 2,000 units at a special unit price of $25. Also, a special stamping machine will have to be purchased for $4,000.

Because it is a special offer from a foreign company and assuming that there is unused capacity, we will not have into account the previous fixed costs.

Unitary costs= 4 + 10 + 8= 22

Fixed cost= 4000

Sales= 2000*25= 50,000

Variable cost= 22*2000= 44,000

Fixed cost= 4,000

Net operating income= 2,000