A. Hickman Manufacturing produces Product A in batches of 4,000 gallons at $.90

Question

A. Hickman Manufacturing produces Product A in batches of 4,000 gallons at $.90 per gallon. Product A can be sold without further processing for $1.20 per gallon. Product A can be processed further to yield Product B, which can be sold for $1.85 per gallon. Product B requires additional processing costs at $1,650 per batch.
Instructions
Compute the incremental income or loss from further production of one batch of Product B.


B.Brooks Manufacturers produces can openers. For the first six months of 2018, the company reported the following operating results while operating at 80% of plant capacity.
Sales = $4,000,000
Variable Cost per unit = $4.90
Fixed Cost per unit = $5.25

In September 2018, Brooks Manufacturers receives a special order for 20,000 can openers at $7.50 from a foreign company. Acceptance of the special order would result in $7,000 of shipping costs.
Instructions
Prepare an incremental analysis for the special order.

Explanation / Answer

a) Compute the incremental income or loss from further production of one batch of Product B.

b) Incremental analaysis :

Sale revenue from product B (4000*1.85) 7400 Sale revenue from product A (4000*1.20) 4800 Incremental revenue 2600 Incremental cost -1650 Incremental profit (loss) 950

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