The ABC Corporation manufactures a single product with the following full unit c
ID: 2514442 • Letter: T
Question
The ABC Corporation manufactures a single product with the following full unit costs at a volume of 2,000 units:
A company recently approached ABC Corporation about buying 200 units for $850. ABC currently sells the models to dealers for $1,300. ABC Corporation's capacity is sufficient to produce the extra 200 units. No incremental (variable) selling expenses would be incurred on the special order.
How much will income change (in the short run) if ABC accepts the special order?
A. Increase by $42,500
B. decrease by $60,000
C. increase by $132,800
D. increase by $37,200
E. None of these answers are correct
Direct materials $400 Direct labor $160 Manufacturing overhead (30% variable) $300 Selling expenses (50% variable) $150 Administrative expense (10% variable) $140 Total per unit $1,150Explanation / Answer
Per unit Total 200 Incremental revenue 850 170000 Incremental costs: Variable costs: Direct materials 400 80000 Direct labor 160 32000 Variable manufacturing overhead 90 18000 Administrative expense 14 2800 Total variable cost 664 132800 Total Incremental costs 132800 Incremental net operating income(loss) 37200 Option D increase by $37,200 is correct
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