Bell Supply House produces recycled paper that it sells by the case. Budgeted amounts for the coming year are as follows: $\begin{array}{lr}\text { Revenues ( } 20,000 \text { cases at } \$ 12 \text { each) }&&\$240,000\
\text { Direct material } & \$ 40,000 \
\text { Direct labor } & 70,000 \
\text { Variable manufacturing overhead } & 50,000 \
\text { Fixed manufacturing overhead } & 30,000&190,000\
\text { Net income }&&\$50,000
\end{array}$ LTS Enterprises has offered to purchase 2,000 cases of the paper from Bell at a price of $12.50 per case. This special order will have additional variable costs of $0.35 per case due to delivery costs. Bell Supply House has the capacity to produce this order and it will not affect any of its other operations. How much is the incremental cost of accepting the special order?

Question

Quizplus · Accepted Answer

The incremental cost of accepting the special order is the additional variable cost per case multiplied by the number of cases. The additional cost is $0.35 per case for 2,000 cases, which equals $700. The total variable cost for producing 2,000 cases is $16,000 (2,000 cases x $8 per case, where $8 is the sum of direct material, direct labor, and variable manufacturing overhead per case). Therefore, the total incremental cost is $16,700 ($16,000 + $700).

Bell Supply House Produces Recycled Paper That It Sells by the Case