A company contemplating the acceptance of a special order has the following unit

Question

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10000 units: $ 4 10 Direct materials Direct labor Variable overhead Fixed overhead A foreign company wants to purchase 3400 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is $(10200) $6200. $(3400 $10200

Explanation / Answer

Per unit 3400 units Incremental revenue 25 85000 Incremental costs: Direct materials 4 13600 Direct labor 10 34000 Variable overhead 8 27200 Special machine 4000 Total Incremental costs 78800 Incremental income 6200 Option 2 is correct

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