The following information relates to a product produced by Ashland Company: Dire
ID: 2419618 • Letter: T
Question
The following information relates to a product produced by Ashland Company:
Direct materials
$
11.60
Direct labor
8.60
Variable overhead
7.60
Fixed overhead
9.60
Unit cost
$
37.40
Fixed selling costs are $2,600,000 per year. Variable selling costs of $5.60 per unit sold are added to cover the transportation cost. Although production capacity is 500,000 units per year, Ashland expects to produce only 400,000 units next year. The product normally sells for $56.00 each. A customer has offered to buy 61,600 units for $34.80 each. The customer will pay the transportation charge on the units purchased. If Ashland accepts the special order, the effect on income would be a:
Direct materials
$
11.60
Direct labor
8.60
Variable overhead
7.60
Fixed overhead
9.60
Unit cost
$
37.40
Explanation / Answer
Staement showing incremental income
If offer is accepted income will increase by 86240
Sales(61600 x 34.80) 2143680 Less: Variable cost (61600 x 27.80) 1712480 Less: Transportation cost(61600 x 5.60) 344960 Net benefit 86240Related Questions
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