Answer:
-$7,500
Explanation:
To determine whether Smooth Move Company to produce 15,000 units for the special order, we consider the relevant cost only, that is the cost of the direct material, the cost of direct labor, the variable overhead and also the incremental costs of the machine along with the cost of the additional direct material cost, if any.
Calculating the incremental revenue from the special order as follows :
Particulars Cost per unit(a) Number of units(b) Total cost(axb)
Direct material 3.10 15,000 46,500
Direct labor 2.25 15,000 33,750
Cost of labelling machine 0.80 15,000 12,000
(12,000/15000)
Variable overhead 1.15 15,000 17,250
Additional direct materials 0.20 15,000 3,000
Incremental cost 7.50 15,000 112,500
Incremental revenue 7.00 15,000 105,000
Decrease in profit -7,500
The incremental cost is more than the incremental revenue which results in the decrease of the profit with an amount of $7,500.
The order will not be accepted as there is a decrease in the profit for the company.
