Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
$$\begin{array} { l r }
\text { Direct materials } & \$ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead (30\% variable) } & 1,800 \
\text { Selling expenses (50\% variable) } & 900 \
\text { Administrative expenses (10\% variable) } & \$ 80 \
\text { Total per unit } & \$ 6,900
\end{array}$$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.
-Refer to the figure.How much will income change if the special order is accepted?

Question

Reggie Corporation manufactures a single product with the following unit costs for 1,000 units:
$$\begin{array} { l r } 
\text { Direct materials } & \$ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead (30\% variable) } & 1,800 \
\text { Selling expenses (50\% variable) } & 900 \
\text { Administrative expenses (10\% variable) } & \$ 80 \
\text { Total per unit } & \$ 6,900
\end{array}$$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order.
-Refer to the figure.How much will income change if the special order is accepted?

Quizplus · Accepted Answer

Income will increase because the company will receive $510,000 from the special order ($5,100 x 100 units) without incurring any additional selling expenses. The income increase can be calculated as follows:

Income from special order = $510,000
Income from regular sales = ($7,800 x 100 units) = $780,000
Total income = $1,290,000

If the company had not accepted the special order, total income would only be $1,178,400 ($7,800 x 150 units).

Therefore, the income increase from accepting the special order is $111,600 ($1,290,000 - $1,178,400).

Reggie Corporation Manufactures a Single Product with the Following Unit