A company contemplating the acceptance of a special order has the following unit

Question

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials 4 Direct labor 10 Variable overhead Fixed overhead 6 A foreign company wants to purchase 2,000 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is a. $6,000 b. $2,000 c. $(6,000) d. $(2,000)

Explanation / Answer

Incremental profit=sales-variable cost-special costs. Here the variable costs include direct materials,direct labour and variable overhead

=(2000*25)-(2000*(4+10+8))-4000

=2000

it is option B

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.