Peirzynski Manufacturing Corporation produces a single product, the Utility Knif

Question

Peirzynski Manufacturing Corporation produces a single product, the Utility Knife.

Budgeted amounts for the coming year are as follows:

Revenues (20,000 units at $12 each) $240,000

Direct material 40,000

Direct labor 70,000

Variable manufacturing overhead 50,000

Fixed manufacturing overhead 30,000

Net income $ 50,000



Podsednik Company has offered to purchase 1,500 units of a special edition of the utility knife from Peirzynski at a price of $11.50 per unit. This special edition will have additional variable costs of $0.25 per unit. Peirzynski has the capacity to produce this order and it will not affect any of their other operations.

What is the incremental profit (loss) associated with the special order?

Explanation / Answer

Variable costs per unit are (40+70+50)/20= 8.00/unit The additional variable costs of .25 bring it up to 8.25 So the incremental profit is (11.50-8.25)* 1,500= 4,875

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