posednik manufacturing corporation produces a single line product the utlilty kn
ID: 2382762 • Letter: P
Question
posednik manufacturing corporation produces a single line product the utlilty knife.budgeted amounts for the coming year are as follows:
revenues (20,000 units at 12$ each)
$240,000
direct materials
40,000
direct labor
70,000
variable manufacturing overhead
50,000
fixed manufacturing iverhead
30,000
net income
50,000
podsednik company has offered to purchase 1,500 units of a special units of a special addition of the utility knife from peizynski at the price of $11.50 per unit.
this special addition will have an additional variable cost of .25 per unit
.
peirzynski has the capacity to produce this order and it will not effecr any of their operations
what is the incremental profit (loss) associated with the special order?
Explanation / Answer
Total Variable costs : direct materials 40,000 direct labor 70,000 variable mfg OH 50,000 ------------------------------- Total Var Cost = $160,000 for 20000 units So pu VC = $160,000/20,000 = $8 .................(A) So COnt pu = SP pu - VC pu = $12-$8 = $4 pu. SO Total Cont from 20000 units = 20000*$4 = $80,000 Less Fixed cost $30000 ----------------------------- Net Income $50,000 WIth New Order of 1500 units, SP pu = $11.50 & Var cost pu = $8 +$0.25 = $8.25 So Cont pu from new order = 11.50 - 8.25 = $3.25 So Total Cont from 1500 units = 1500*$3.25 = $4,875 So Incremental profit from this Spl order is $4875
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