Wade Company is operating at 75% of its manufacturing capacity of 140,000 produc

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 14,000 units at $36 each and sell them outside the country so as not to compete with Wade. The following data are available:

In producing 14,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $7.2 per unit would be incurred. What is the effect on income if Wade accepts this order?

Income will increase by $10.80 per unit.

Income will increase by $3.60 per unit.

Income will decrease by $32.40 per unit.

Income will decrease by $7.20 per unit.

Income will increase by $7.20 per unit.

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 14,000 units at $36 each and sell them outside the country so as not to compete with Wade. The following data are available:

Explanation / Answer

Income will decreases by $7.2 per unit since there will be no change in the varibale cost and fixed overhead cost remains the same since the fixed overhead would have been approtioned based on the capacity of the machinery which will not affect upto actually capacity

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