Question

Goodstone Tire Corporation sells tires for $90 each. Per-unit costs associated with producing and selling the tires are: Direct materials $35, Direct labor 10, Factory overhead 20. The variable portion of the factory overhead is $8 per unit. A foreign company wants to purchase 1,000 tires for $65 each. Assuming that Goodstone has excess capacity, ______. a. the incremental profit from the special order will be $12,000.b. the incremental loss from the special order will be $25,000.c. there will be no incremental profit or loss from the special order.

Answer 1

Answer:

b. the incremental loss from the special order will be $25,000

Explanation:

Goodstone Tire Corporation

                                         Unit                         Unit              

Sales                                     $ 90                     $65

Direct Materials        $35

Direct Labor               10

VOH                             8    

Total Variable Costs                    53                           53        

Contribution Margin                      37                          12      

Less Fixed Costs                           12                          12

Profit                                             $ 25                          Zero

As it is shown above no profit by the special order instead the $ 25,000 which he will be getting from the regular sale will also be lost by the special order. Therefore ther will be an incremental loss of $ 25000 from the special order.