Element Boards makes skateboard wheels.Budget information regarding the current period is given below: $\begin{array}{lr}
\text { Revenue }(200,000 \text { wheels at } \$ 3.00 \text { each) } & \$ 600,000 \
\text { Direct materials } & 120,000 \
\text { Direct labor } & 220,000 \
\text { Variable manufacturing overhead } & 50,000 \
\text { Fixed manufacturing overhead } & 70,000
\end{array}$ 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 net income (loss) associated with accepting the special order?

Question

Quizplus · Accepted Answer

The incremental revenue from the special order is 6,000 wheels at $2.75 each, totaling $16,500. The incremental costs include the variable costs (direct materials, direct labor, and variable manufacturing overhead) which remain the same per unit, and the additional fixed manufacturing overhead of $5,000. The variable cost per wheel can be calculated from the current budget information: ($120,000 + $220,000 + $50,000) / 200,000 wheels = $1.95 per wheel. For 6,000 wheels, the total variable cost is 6,000 wheels * $1.95 = $11,700. The total incremental cost is $11,700 (variable costs) + $5,000 (additional fixed overhead) = $16,700. Thus, the incremental net income (loss) is $16,500 (incremental revenue) - $16,700 (incremental costs) = ($200).

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