Peirzynski Manufacturing Corporation produces a single product, the Utility Knif

Question

Peirzynski Manufacturing Corporation produces a single product, the Utility Knife. Budgeted amounts for the coming year are as follows: Revenues (20,000 units at $12 each) $240,000 Direct material 40,000 Direct labor 70,000 Variable manufacturing overhead 50,000 Fixed manufacturing overhead 30,000 Net income $50,000 Podsednik Company has offered to purchase 1,500 units of a special edition of the utility knife from Peirzynski at a price of $11.50 per unit. This special edition will have additional variable costs of $0.25 per unit. Peirzynski has the capacity to produce this order and it will not affect any of their other operations. What is the incremental cost of accepting the special order?

A) $12,000
B) $14,250
C) $14,625
D) $12,375

Explanation / Answer

Variable cost per unit

Direct materials

$2

Direct labor

3.50

Variable manufacturing overhead

2.50

Additional cost

   .25

Total cost

$8.25

Incremental cost 1500*8.25 = $12,375

Direct materials

$2

Direct labor

3.50

Variable manufacturing overhead

2.50

Additional cost

   .25

Total cost

$8.25

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