Wade Company is operating at 75% of its manufacturing capacity of 140,000 produc
ID: 2481790 • Letter: W
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:
Costs at 75% capacity:
direct material $12.00 Total $1,260,000
Direct labor 9.00 total 945,000
Overhead variable 15 total 1,575,000
Total 36 3,780,000
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 decrease by $4 per unit.
B. Income will increase by $4 per unit. C. Income will increase by $5 per unit. D. Income will decrease by $5 per unit. E. Income will increase by $11 per unit.
26. A company has the choice of either selling 750 defective units as scrap or rebuilding them. They have already spent $14 per unit making these items. The company could sell the defective units as they are for $8 per unit. Alternatively, it could rebuild them with incremental costs of $3 per unit for materials, $3per unit for labor, and $1per unit for overhead, and then sell the rebuilt units for $15.00 each. What should the company do?
A. Sell the units as scrap.
B. Rebuild the units.
C. It does not matter because both alternatives have the same result.
D. Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently.
E. Throw the units away.
Explanation / Answer
Calculate effect on income if wade accepts this order :
So answer is C) Income will increase by $5 per unit
26) Differential anlysis :
So answer is C. It does not matter because both alternatives have the same result.
Incremental revenue 32 Incremental cost Direct material 12 Direct labour 9 Variable manufacturing overhead 6 Incremental profit 5Related Questions
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