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Calculating Incremental profits

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Universal Audio manufactures car speakers that it sells to other resellers that then customize and distribute the product to retailers that sell hi-fi auto equipment. The yearly volume of output is 300,000 pairs. The selling price and cost per unit are shown below:

Selling price $150
Costs:
Direct material $25
Direct labor $45
Variable overhead $20
Variable selling expenses $15
Fixed selling expenses $100,000
Unit profit before tax $35

Management is evaluating the alternative of performing the necessary customizing to allow Universal Audio to sell its output directly to car stereo retailers for $200 per unit under an in-house label. Although no added investment in productive facilities is required, additional processing costs are estimated to be:

Direct labor $20 per unit
Variable overhead $15 per unit
Variable selling expenses $10 per unit
Fixed selling expenses $300,000 per year

(A) Calculate the incremental profit that Universal Audio would earn by customizing its instruments and marketing directly to end users.

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Solution:

1.Additional direct labor=$20
2.Additional Variable overhead=$15
3.Additional Variable ...

Solution Summary

Solution describes the steps for calculating incremental profit if company decides to sell their products directly to retailers.

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