Reggie Corporation manufactures a single product with the following unit costs f

Question

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: Direct materials $2,400 Direct labor 960 Overhead (30% variable) 1,800 Selling expenses (50% variable) 900 Administrative expenses (10% variable) 840 Total per unit $6,900 Recently, a company approached Reggie Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,800. Reggie Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. How much will income change if the special order is accepted A. increase by $398,400 B. decrease by $180,000 C. increase by $111,600 D. No change

Explanation / Answer

Number of units sold 1000 100 Selling price 7800 5100 Sales value 510000 Variable cost Unit cost Direct Material 2400 240000 Direct Labor 960 96000 Overhead ( 30% of 1800) 540 54000 Selling expenses ( 50% of 900) 450 0    Administrative expenses ( 10% of 840) 84 8400 Total variable cost 4434 398400 Fixed cost Overhead ( 70% of 1800) 1260 0 Selling expenses ( 50% of 900) 450 0    Administrative expenses ( 90% of 840) 756 0 0 Total fixed cost 2466 0 Total Cost 6900 398400 Net income 900 111600 Hence, income will increase by $111600

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