Termus Industries is operating at 85% of its manufacturing capacity of 37,500 pr

Question

Termus Industries is operating at 85% of its manufacturing capacity of 37,500 product units per year. A customer has offered to buy an additional 3,000 units at $28.5 each and sell them outside the country so as not to compete with Termus. The following data are available: In producing 3,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $4.25 per unit would be incurred. What is the effect on income if Termus accepts this order? income will decrease by $7.98 per unit. income will increase by $24.77 per unit. Income will decrease by $6.84 per unit. Income will increase by $6.84 per unit. Income will increase by $3.73 per unit.

Explanation / Answer

Due to the special order, Income will increase by

=28.5-(11.4+9.12+4.25)

=3.73 per unit

Answer: Income will increase by $3.73 per unit

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