Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: 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.
Suppose the special order is accepted.How much will income change?
$\begin{array}{lr}
\text { Direct materials } & \$ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead (30\% variable) } & 1,800 \
\text { Selling expenses ( } 50 \% \text { variable) } & 900 \
\text { Administrative expenses (10\% variable) } & 840 \
\text { Total per unit } & \$ 6,900
\end{array}$
A)It will decrease by $180,000.
B)It will not change.
C)It will increase by $111,600.
D)It will increase by $398,400.

Question

Quizplus · Accepted Answer

The income will increase by $111,600 because the special order's total revenue ($510,000) minus the variable costs for producing 100 units (Direct materials: $240,000, Direct labor: $96,000, Variable factory overhead: $54,000 (30% of $180,000), Variable selling expenses: $45,000 (50% of $90,000), Variable administrative expenses: $8,400 (10% of $84,000), totaling $443,400) results in an increase in income.

Reggie Corporation Manufactures a Single Product with the Following Unit