I am trying to fiture out my total variable costs in a Special Order sale to det

Question

I am trying to fiture out my total variable costs in a Special Order sale to determine whether to accept or reject. My variable costs are Direct Materials of .8 per unit, Direct Labor at .5 per unit, Packaging at .75 per unit, MOH at 1.2 per unit, Selling and administrative costs at .08 per unit and shipping at .5 per unit for a total variable cost of 4.55 per unit. If I accept the special order we will sell 150,000 units at 4.25 per unit. The speical order would avoid packing costs for the contract as well as vaiable selling and admin costs. We would have to buy an additional machine at 50,000. That leaves variable costs for the special oder as Direct Materials, Direct Labor, MOH and Shipping and I come up with a net income increase of 210,282. Is that correct?

Explanation / Answer

Incremental revenue 637500 =150000*4.25 Increemntal costs: Direct Materials 120000 =150000*0.8 Direct Labor 75000 =150000*0.5 MOH 180000 =150000*1.2 Shipping 75000 =150000*0.5 Machine 50000 500000 Incremental net income 137500

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