Bay States Chemical Corporation Produces an Oil-Based Chemical Product Which

Bay States Chemical Corporation produces an oil-based chemical product which it sells to paint manufacturers. In 2016 the company incurred $344000 of costs to produce 40000 gallons of the chemical. The selling price of the chemical is $11.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: $\begin{array}{lr}\text { Direct materials } & \$ 6.00 \\\text { Direct labor } & 1.20 \\\text { Variable manufacturing overhead } & .80 \\\text { Fixed manufacturing overhead } & .60 \\\text { Total manufacturing costs }&\$8.60\end{array}$ The company is considering manufacturing the paint itself. If the company processes the chemical further and manufactures the paint itself the following additional costs per gallon will be incurred: Direct materials $1.80 Direct labor $.60 Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the paint at $15.00 per gallon.
Instructions
Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the paint.