Wade Company is operating at 75% of its manufacturing capacity of 140,000 produc

Question

Wade Company is operating at 75% of its manufacturing capacity of 140,000 product units per year. A customer has offered to buy an additional 20,000 units at $32 each and sell them outside the country so as not to compete with Wade. The following data are available:

http://ezto.mhhm.mcgraw-hill.com/13252698227504984865.tp4?REQUEST=SHOWmedia&media=image017.png
(click link for image)

In producing 20,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $6 per unit would be incurred. What is the effect on income if Wade accepts this order?


A. Income will increase by $5 per unit.
B. Income will increase by $4 per unit.
C. Income will decrease by $4 per unit.
D. Income will decrease by $5 per unit.
E. Income will increase by $11 per unit.

Explanation / Answer

For new order, Var cost pu = DM + DL + VC pu = 12+9+6 = 27 pu So Addl cont pu = $32-$27 = $5 So Ans is A. Income will increase by $5 per unit.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.