Speedo produces signature goggles which it sells for $35. The company produces 15,000 pairs of these goggles annually but has the capacity to produce 20,000. An order for manufacturing and selling 1,000 pairs at $25 has been received from the U.S. Olympic swim team that would not disrupt current operations. Current costs for the signature goggles are as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 6.00 \
\text { Direct labor } & 10.00 \
\text { Variable overhead } & 3.00 \
\text { Fixed overhead } & \$ 8.00 \
\text { Total } & \$ 27.00
\end{array}$ In addition, the Olympic coach would like to add the U.S. Olympic logo to each pair which would require an additional $2 per pair of goggles in additional labor costs. The company would also have to rent a logo stamper to stamp the logo which would cost $600. Which statement is true with regard to this order?

Question

Quizplus · Accepted Answer

The incremental costs include direct materials, direct labor, variable overhead, additional labor for the logo, and the logo stamper rental. The total incremental cost per unit is $21 ($6 + $10 + $3 + $2) plus the fixed cost of $600 for the stamper. For 1,000 units, the total incremental cost is $21,000 + $600 = $21,600.

Speedo Produces Signature Goggles Which It Sells for $35 In Addition, the Olympic Coach Would Like to Add the Company