Anderson makes a single product. Budget information regarding the current period
ID: 2455481 • Letter: A
Question
Anderson makes a single product. Budget information regarding the current period is given below:
Revenue (100,000 units at $8.00)
$800,000
Direct materials
150,000
Direct labor
125,000
Variable manufacturing overhead
235,000
Fixed manufacturing overhead
110,000
Net income
$180,000
Dye Company approaches Anderson with a special order for 15,000 units at a price of $7.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Anderson is operating at capacity and will incur an additional $50,000 in fixed manufacturing overhead if the order is accepted.
18.
What is the incremental income (loss) associated with accepting the special order?
A)
($14,000)
B)
$36,000
C)
($23,500)
D)
$27,000
Revenue (100,000 units at $8.00)
$800,000
Direct materials
150,000
Direct labor
125,000
Variable manufacturing overhead
235,000
Fixed manufacturing overhead
110,000
Net income
$180,000
Explanation / Answer
A) ($14,000) Statement showing computations Particulars Amount No of units 15,000.00 Sales Revenue = 15000*7.5 112,500.00 Costs: Direct Materials = 150000/100000 *15000 22,500.00 Direct Labour = 125000/100000*15000 18,750.00 Variable Overhead = 235000/100000 *15000 35,250.00 Additional fixed Manu O/H 50,000.00 Total Costs 126,500.00 Income from special order = Sales- Costs (14,000.00)