The NY Memorabilia Company produces a souvenir plate which normally sells for $7
ID: 2435363 • Letter: T
Question
The NY Memorabilia Company produces a souvenir plate which normally sells for $79.95. The company produces 1,500 plates annually but has the capacity to produce 2,000 plates. A special order for manufacturing and selling 200 plates at $49.95 has been received which would not disrupt current operations. Current costs for the plate are as follows:Direct materials $17.00
Direct labor 14.50
Variable overhead 4.00
Fixed overhead 5.00
Total $40.50
In addition, the customer would like to add a date to each plate which would require an additional $2 per plate in additional labor costs and NY Memorabilia Company would also have to purchase a piece of equipment to create the date which would cost $1,200. This equipment would not have any other uses.
With regard to this special order only:
Answer
incremental revenues will exceed incremental costs by $2,490.
incremental revenues will exceed incremental costs by $890.
incremental revenues will exceed incremental costs by $2,890.
incremental revenues will exceed incremental costs by $1,290.
Explanation / Answer
Answer selling 200 plates at $49.95 Total sales revenue $9,990 Direct materials $17.00 Direct labor 14.50 Variable overhead 4.00 Total variable cost $35.50 Total variable cost $7,100 Incremental revenue will be $2,890 incremental revenues will exceed incremental costs by $2,890.