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 40,000 70,000 Direct materi al Direct labor Variable manufacturing overhead 50,000 Fixed manufacturing overhead 30,000 Net income 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 S0.25 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? 50,000

Explanation / Answer

Variable costs per unit = ($40,000 + $70,000 + $50,000) / 20,000 = $8.00/unit

The additional variable costs of $0.25 bring it up to $8.25

So the incremental profit is ($11.50 - $8.25) * 1,500= $4,875

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