Samuels Enterprises has the capacity to produce 10,000 units of its Gizmo produc

Question

Samuels Enterprises has the capacity to produce 10,000 units of its Gizmo product each month. They plan to produce 8,000 units in October. The following table lists the total cost incurred to produce and sell the 8,000 units: Direct materials Direct labor Variable overhead $472,000 128,000 40,000 80,000 24,000 8,000 Fixed overhead Sales commissions Shipping Samuels sells the Gizmos for $110 each. A distributor wants to order 200 Gizmos from Samuels (in addition to the 8,000 currently planned). The distributor would only sell the Gizmos in Europe, so they would not be competing for Samuels distributor is willing to pay $85 per unit. No sales commissions would be involved because the distributor approached Samuels. Shipping costs would be incurred ' regular customers. The 1. Will Samuels' income increase or decrease if they accept the offer? (enter either increase or decrease) 2. By how much? USE ONLY WHOLE NUMBERS. DO NOT USE DOLLAR SIGNS, COMMAS ETC Blank # 1 Blank f# 2 -Fo F1

Explanation / Answer

Relevant Variable cost Direct Material        472,000 Direct Labor        128,000 Variable overhead           40,000 Shipping             8,000 Total Relevant variable cost        648,000 Units             8,000 Variable cost per unit 648000/8000 Variable cost per unit             81.00 Since Quoted price is higher than relevant variable cost so profit will increase. Sale Price             85.00 Contribution 85-81          4.00 Order                200 Increaes in profits= 200*4           800

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