Question

Rumba dance hall has offered to buy from muy bueno bakery 100 of their chocolate cakes for $25 each. no variable selling costs would need to be paid, but special packaging of $100 will have to be added. normally, muy bueno sells their cakes at $35 each. their costs per cake are: materials, $12; direct labor, $5; variable factory overhead, $3; fixed factory overhead, $2; and variable selling costs, $4. how much net differential income or loss will muy bueno make if they accept this offer?

Answer 1

Differential income or loss is the difference between the differential revenue and differential cost. The computation should be like this:

# of chocolate cakes 100Sales price $25Total sales value: $2,500
Materials @ 12 1,200Direct labor @ 5 500Variable FOH @ 3 300Special Packaging Total costs: 2,100
Sales 2,500 – Costs 2,100 = 400