Element Boards makes skateboard wheels. Budget information regarding the current period is given below: $\begin{array}{lr}
\text { Revenue }(200,000 \text { wheels at } \$ 3.00) & \$ 600,000 \
\text { Direct materials } & 120,000 \
\text { Direct labor } & 220,000 \
\text { Variable manufacturing overhead } & 50,000 \
\text { Fixed manufacturing overhead } & 70,000
\end{array}$ The USA Skate Team has approached Element with a special order for 6,000 wheels at a price of $2.75 per wheel. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Element is operating at capacity and will incur an additional $5,000 in fixed manufacturing overhead if the order is accepted. What is the incremental cost associated with accepting the special order?

Question

Quizplus · Accepted Answer

The incremental cost includes variable costs for 6,000 wheels and the additional fixed overhead. Variable cost per wheel is calculated as (Direct materials + Direct labor + Variable manufacturing overhead) / 200,000 wheels = ($120,000 + $220,000 + $50,000) / 200,000 = $1.95 per wheel. For 6,000 wheels, variable costs are 6,000 * $1.95 = $11,700. Adding the additional fixed overhead of $5,000 gives a total incremental cost of $11,700 + $5,000 = $16,700.

Element Boards Makes Skateboard Wheels The USA Skate Team Has Approached Element with a Special