Thank you Tunnel Incorporated provided the following information regarding its s

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Tunnel Incorporated provided the following information regarding its single product: Direct materials used Direct labor incurred Variable manufacturing overheac Foxed manufacturing overhead Variable selling and administrative expenses Fbxed seling and administrative expenses S240,000 $420,000 S150,000 $100,000 S65,000 $20,000 The regular selling price for the product is $80. The annual quantity of units produced and sold is 42,000 units (the costs above relate to the 42,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory What would be the effect on operating income of accepting a special order for 1,340 units at a sale price of $42 per product? The special order units would not require any variable selling and administrative expenses. (Round any O A. Increase by $30,431 O B. Decrease by $30,431 ° C. Increase by $25,849 O D. Decrease by $25,849

Explanation / Answer

Relevant variable cost per unit = (240000+420000+150000)/42000 = 19.29

Fixed costs and variable selling and administrative costs would not change so they are not relevant.

Incremental revenue = 1340*42 = 56280

Incremental variable costs = 1340*19.29 =25849

Incremental Profit = 30431

Therefore, answer is option A

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