The boat company makes 20,000 props per year that they sell for $30 per prop. Th
ID: 2376295 • Letter: T
Question
The boat company makes 20,000 props per year that they sell for $30 per prop. The unit product costs of the props are computed as follows:
Direct materials
$8.00
Direct labor
$7.00
Variable manufacturing overhead
$2.00
Fixed manufacturing overhead
$5.00
Unit product cost
$22.00
The fixed manufacturing overhead includes avoidable costs of $3.00. A company from England has offered to buy 6,000 of the props for $20per prop. The additional costs of the order include putting the name of the company on the props is expected to be $4,000.
a. What is the incremental cost per unit for the special order
b. What is the total incremental cost of accepting the special order
c. What is the total incremental revenue if the special order is accepted
d. What is the total incremental profit of accepting the special order
Direct materials
$8.00
Direct labor
$7.00
Variable manufacturing overhead
$2.00
Fixed manufacturing overhead
$5.00
Unit product cost
$22.00
Explanation / Answer
1. The incremental cost per unit of the special order will be = Unit product cost - avoidable cost = $22 - $3 = $19
2. Total incremental cost = 6000*$19 = 114000
3. Total Incremental revenue = $20*6000 = $120000
4. Toal incremntal profit =$120000 - $114000 - special cost of $4000 = $2000
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