Question

Colortrigon Company makes a variety of paper products. One product is 30 lb copier paper, packaged 3,000 sheets to a box. One box normally sells for $20. A large bank offered to purchase 6,000 boxes at $15 per box. Costs per box are as follows:Direct materials $6Direct labor 2Variable overhead 2Fixed overhead 3No variable marketing costs would be incurred on the order. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable.If Colotrigon accepts the order how much will its income increase or decrease by?

Answer 1

Colortrigon's income will increase by $30,000 if the order is accepted.

Step-by-step explanation:

Revenue = $15 per box x 6,000 boxes = $90,000

minus direct materials = $6 per box x 6,000 boxes = ($36,000)

minus direct labor = $2 per box x 6,000 boxes = ($12,000)

minus variable overhead = $2 per box x 6,000 boxes = ($12,000)

increase / decrease originated from special order = $90,000 - $36,000 - $12,000 - $12,000 = $30,000

Fixed costs are not included in calculating differential revenue from special orders.