Incremental cost/profit - special order decision
Not what you're looking for?
Allen Manufacturing Corporation produces a single product, the Utility Knife.
Budgeted amounts for the coming year are as follows:
Revenues (20,000 units at $12 each) $240,000
Direct material 40,000
Direct labor 70,000
Variable manufacturing overhead 50,000
Fixed manufacturing overhead 30,000
Net income $ 50,000
Prescott Company has offered to purchase 1,500 units of a special edition of the utility knife from Allen at a price of $11.50 per unit. This special edition will have additional variable costs of $0.25 per unit. Allen has the capacity to produce this order and it will not affect any of their other operations.
What is the incremental cost of accepting the special order?
A. $12,000
B. $14,250
C. $14,625
D. $12,375
What is the incremental profit (loss) associated with the special order?
A. ($4,250)
B. $5,625
C. $4,875
D. $5,250
Purchase this Solution
Solution Summary
Discussion guides the student through the computations and the reasons for them.
Solution Preview
Incremental cost of accepting the order:
DM $2.00 ($40k/20k)
DL $3.50 ($70k/20k)
VOH $2.50 ($50k/20k) + $0.25 extra = $2.75
total variable costs for new units: $2.00 + ...
Education
- BSc, University of Virginia
- MSc, University of Virginia
- PhD, Georgia State University
Recent Feedback
- "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
- "Thank, this is more clear to me now."
- "Awesome job! "
- "ty"
- "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Employee Orientation
Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.