Core Manufacturing makes a single product. Budget information regarding the curr

Question

Core Manufacturing makes a single product. Budget information regarding the current period is given below: Revenue (100,000 units at $8.00) $800,000 Direct materials $170,000 Direct labor 125,000 Variable manufacturing overhead 235,000 Fixed manufacturing overhead 110,000 640,000 Total $160,000 Deer Company approaches Core with a special order for 15,000 units at a price of $8.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company

Explanation / Answer

Core Manufacturing makes a single product. Budget information regarding the current period is given below:

Revenue (100,000 units at $8.00)                                  $800,000

Direct materials                                      $170,000

Direct labor                                              125,000

Variable manufacturing overhead            235,000

Fixed manufacturing overhead                110,000           640,000

Net income                                                                    $160,000

Deer Company approaches Core with a special order for 15,000 units at a price of $8.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company’s orders. However, Core is operating at capacity and will incur an additional $55,000 in fixed manufacturing overhead if the order is accepted. What is the incremental revenue associated with accepting the special order?

answer = $127,500

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