Bell Supply House produces recycled paper that it sells by the case.Budgeted amounts for the coming year are as follows: $\begin{array}{lr}
\text { Revenues (20,000 cases at } \$ 12 \text { each) } &&\$240,000 \
\text { Direct material } & \$ 40,000 \
\text { Direct labor } & 70,000 \
\text { Variable manufacturing overhead } & 50,000 \
\text { Fixed manufacturing overhead } & 30,000 &190,000\
\text { Net income }&&50,000
\end{array}$ 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 includes the additional variable costs and the costs of producing the extra 2,000 cases. The variable costs are direct material, direct labor, and variable manufacturing overhead. The additional variable cost due to delivery is $0.35 per case for 2,000 cases, totaling $700. The cost to produce each case can be calculated from the given data: $ \$40,000 + \$70,000 + \$50,000 = \$160,000 $ for 20,000 cases, which equals \$8 per case. For 2,000 cases, this is $ 2,000 \times \$8 = \$16,000 $. Therefore, the total incremental cost is $ \$16,000 + \$700 = \$16,700 $.

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