Wills R Us prepares wills for individuals. The cost of preparing 3,000 wills in

Question

Wills R Us prepares wills for individuals. The cost of preparing 3,000 wills in the prior year was:

Total Cost

They recently received an offer from LegalEase to prepare wills for 700 of their clients. LegalEase is willing to pay $540 per will.

Wills R Us has the capacity to prepare 4,000 wills. Should they accept this offer?

$ 1,155,000

Direct Labor $    525,000 Variable overhead        360,000 Fixed Overhead        270,000

Total Cost

They recently received an offer from LegalEase to prepare wills for 700 of their clients. LegalEase is willing to pay $540 per will.

Wills R Us has the capacity to prepare 4,000 wills. Should they accept this offer?

$ 1,155,000

Explanation / Answer

Company should accept the offer. so they can earn an additional profit of $171,500

Sales value (700*$540) $ 378,000 Less: Direct labour ($525,000/3,000*700) $ 122,500 Less: Variable overhead ($360,000/3,000*700) $    84,000 Incremental profit $ 171,500

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