Question

Wade Company is operating at 75% of its manufacturing capacity of 140,000 product units per year. A customer has offered to buy an additional 20,000 units at $32 each and sell them outside the country so as not to compete with Wade. The following data are available:

Costs at 75% capacity: Per Unit Total
Direct materials $12.00 $1,260,000
Direct labor 9.00 945,000
Overhead (fixed and variable) 15.00 1,575,000
Totals $36.00 $3,780,000

In producing 20,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $6 per unit would be incurred. What is the effect on income if Wade accepts this order?

A) Income will increase by $3.80 per unit.
B) Income will decrease by $7.60 per unit.
C) Income will decrease by $34.20 per unit.
D) Income will increase by $11.40 per unit.
E) Income will increase by $7.60 per unit.

Answer 1

Each unit will increase the income of Wade by 5 dolllars

Step-by-step explanation:

We need to solve for the increase in the incoem generate for the order:

sales price 32 dollars

variable cost incurred in the manufacturing process:

materials 12

labor 9

overhad 6

total variable cost 27

contribution per unit 5 dollars

Each unit will increase the income of Wade by 5 dolllars