Termus Industries is operating at 85% of its manufacturing capacity of 50,000 pr

Question

Termus Industries is operating at 85% of its manufacturing capacity of 50,000 product units per year. A customer has offered to buy an additional 4,000 units at $25 each and sell them outside the country so as not to compete with Termus. The following data are available:

In producing 4,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $4 per unit would be incurred. What is the effect on income if Termus accepts this order?

Income will decrease by $6 per unit. Income will increase by $6 per unit. Income will increase by $7 per unit. Income will decrease by $3 per unit. Income will increase by $3 per unit.

Explanation / Answer

Income will increase by $6 per unit.

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