Highbank Company is operating at 80% of its manufacturing capacity of 62,000 product units per year.A customer has offered to buy an additional 10,000 units at $17 each and sell them outside the country so as not to compete with Highbank.The following data are available:
$$\begin{array} { l c r }
\text { Costs at 80\%/ capacity: } & { \text { Per } } & \text { Total } \
& \text { Unit } & \
\text { Direct materials } & \$ 4.00 & \$ 198,400 \
\text { Direct labor } & 2.00 & 99,200 \
\text { Overhead (fixed and variable) } & \underline { 5 . 0 0 } & \underline { 248,000 } \
\text { Totals } & \underline { \$ 1 1 . 0 0 } & \underline{ \$ 545,600}
\end{array}$$ In producing 10,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $0.75 per unit would be incurred.What is the effect on total income if Highbank accepts this order?

Question

Highbank Company is operating at 80% of its manufacturing capacity of 62,000 product units per year.A customer has offered to buy an additional 10,000 units at $17 each and sell them outside the country so as not to compete with Highbank.The following data are available:
$$\begin{array} { l c r } 
\text { Costs at 80\%/ capacity: } & { \text { Per } } & \text { Total } \
& \text { Unit } & \
\text { Direct materials } & \$ 4.00 & \$ 198,400 \
\text { Direct labor } & 2.00 & 99,200 \
\text { Overhead (fixed and variable) } &  \underline { 5 . 0 0 } & \underline { 248,000 } \
\text { Totals } &  \underline { \$ 1 1 . 0 0 } & \underline{ \$ 545,600}
\end{array}$$ In producing 10,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $0.75 per unit would be incurred.What is the effect on total income if Highbank accepts this order?

Quizplus · Accepted Answer

The Answer of Highbank Company is operating at 80% of its manufacturing capacity of 62,000 product units per year.A customer has offered to buy an additional 10,000 units at $17 each and sell them outside the country so as not to compete with Highbank.The following data are available:
$$\begin{array} { l c r } 
\text { Costs at 80\%/ capacity: } & { \text { Per } } & \text { Total } \
& \text { Unit } & \
\text { Direct materials } & \$ 4.00 & \$ 198,400 \
\text { Direct labor } & 2.00 & 99,200 \
\text { Overhead (fixed and variable) } &  \underline { 5 . 0 0 } & \underline { 248,000 } \
\text { Totals } &  \underline { \$ 1 1 . 0 0 } & \underline{ \$ 545,600}
\end{array}$$ In producing 10,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $0.75 per unit would be incurred.What is the effect on total income if Highbank accepts this order?

Highbank Company Is Operating at 80% of Its Manufacturing Capacity