ABC Company. has the capacity to produce 15,000 lamps each month. Current regula
ID: 2403384 • Letter: A
Question
ABC Company. has the capacity to produce 15,000 lamps each month. Current regular production and sales are 12,000 lamps at a selling price of $15 each. The costs of producing each lamp is: direct materials $5.00 direct labor 3.00 variable overhead 1.00 fixed overhead 1.25 variable selling costs 0.50 fixed selling costs 0.75 ABC Company has received a special order who wants to purchase 6,000 lamps at a reduced price of $13 per lamp. ABC Company has determined that there would be no selling expenses in connection with this special order. Calculate the increase in company profits if ABC Company accepts the special order.
Explanation / Answer
Incremental revenue from order 78000 (6000 units @13) Less: Incremental cost Material 6000*5 30000 Labour 6000*3 18000 Variable Overheads 6000*1 6000 24000 Less: Loss of Contribution from regular sales 13500 (3000 units @ 4.50) Net Financial advantage 10500 Increase in Income on accepting order: $ 10500