Bonder Company makes a variety of paper products.One product is printer paper,packaged 2,000 sheets to a box.One box normally sells for $30 A large bank offered to purchase 5,000 boxes at $26 per box.Costs per box are as follows: No variable marketing costs would be incurred on the order.The company is operating significantly below the maximum production capacity.No fixed costs are avoidable.Which of the following represents the solution?
$\begin{array}{lr}
\text { Direct materials } & \$ 128 \
\text { Direct labour } & 53 \
\text { Variable overhead } & 21 \
\text { Fixed overhead } & 65
\end{array}$
A)Do not accept the order because income will decrease by $35,000.
B)Do not accept the order because income will decrease by $5,000.
C)Accept the order because income will increase by $35,000.
D)Accept the order because income will increase by $5,000.

Question

Quizplus · Accepted Answer

The variable cost per box is $202 (sum of direct materials, direct labor, and variable overhead). Selling at $26 per box results in a loss of $176 per box. However, since fixed costs are not avoidable and the company is operating below capacity, the contribution margin from the order will cover some fixed costs, resulting in an increase in income by $35,000.

Bonder Company Makes a Variety of Paper Products A)Do Not Accept the Order Because Income Will Decrease by Printer