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, ______.

Answer 1

Answer:

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

Explanation:

A ledger for 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                          0

From the ledger been show, there was a loss of $25,000 and we can also see that there is no profit made in the sale in the special order, For this reason, our loss will increase by $25,000 gotten from the special order.