A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 2,000 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 $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is

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Elle Shepherd

Business

2 July, 12:20

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 2,000 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 $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is

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Natasha Bullock · Answer 1

Increase in income = 2,000

Explanation:

Giving the following information:

Unit cost behavior, based on 10,000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6. A foreign company wants to purchase 2,000 units at a special unit price of $25. Also, a special stamping machine will have to be purchased for $4,000.

Because it is a special offer from a foreign company and assuming that there is unused capacity, we will not have into account the previous fixed costs.

Unitary costs = 4 + 10 + 8 = 22

Fixed cost = 4000

Sales = 2000*25 = 50,000

Variable cost = 22*2000 = 44,000

Fixed cost = 4,000

Net operating income = 2,000