Wear Company is operating at 70% of its manufacturing capacity of 78,000 product units per year.A customer has offered to buy an additional 18,000 units at $41 each and sell them outside the country so as not to compete with Wear Company.The following data are available:
$\begin{array}{lrr}
\text { Costs at 70\%/ capacity: } & { \text { Per } } & \text { Total } \
& \text { Unit } & \
\text { Direct materials } & \$ 28.00 & \$ 1,528,800 \
\text { Direct labor } & 3.00 & 163,800 \
\text { Overhead (fixed and variable) } & \underline{7.00} & \underline{\$ 382,200} \
{\text { Totals }} & \underline{\$ 38.00}& \underline{\$ 2.074 .800}
\end{array}$ In producing 18,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $1.28 per unit would be incurred.What is the effect on total income if Wear Company accepts this order?

Question

Wear Company is operating at 70% of its manufacturing capacity of 78,000 product units per year.A customer has offered to buy an additional 18,000 units at $41 each and sell them outside the country so as not to compete with Wear Company.The following data are available:
 $\begin{array}{lrr}
\text { Costs at 70\%/ capacity: } & { \text { Per } } & \text { Total } \
& \text { Unit } & \
\text { Direct materials } & \$ 28.00 & \$ 1,528,800 \
\text { Direct labor } & 3.00 & 163,800 \
\text { Overhead (fixed and variable) } &  \underline{7.00} &  \underline{\$ 382,200} \
{\text { Totals }} & \underline{\$ 38.00}&  \underline{\$ 2.074 .800} 
\end{array}$ In producing 18,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $1.28 per unit would be incurred.What is the effect on total income if Wear Company accepts this order?

Quizplus · Accepted Answer

The Answer of Wear Company is operating at 70% of its manufacturing capacity of 78,000 product units per year.A customer has offered to buy an additional 18,000 units at $41 each and sell them outside the country so as not to compete with Wear Company.The following data are available:
 $\begin{array}{lrr}
\text { Costs at 70\%/ capacity: } & { \text { Per } } & \text { Total } \
& \text { Unit } & \
\text { Direct materials } & \$ 28.00 & \$ 1,528,800 \
\text { Direct labor } & 3.00 & 163,800 \
\text { Overhead (fixed and variable) } &  \underline{7.00} &  \underline{\$ 382,200} \
{\text { Totals }} & \underline{\$ 38.00}&  \underline{\$ 2.074 .800} 
\end{array}$ In producing 18,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $1.28 per unit would be incurred.What is the effect on total income if Wear Company accepts this order?

Wear Company Is Operating at 70% of Its Manufacturing Capacity