Colortrigon Company makes a variety of paper products. One product is 30 lb copi

Question

Colortrigon Company makes a variety of paper products. One product is 30 lb copier paper, packaged 3,000 sheets to a box. One box normally sells for $20. A large bank offered to purchase 6,000 boxes at $15 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 productive capacity. No fixed costs are avoidable.

If Colotrigon accepts the order how much will its income increase or decrease by?

Explanation / Answer

Per unit Total 6000 Incremental revenue 15 90000 Incremental costs: Variable costs: Direct materials 6 36000 Direct labor 2 12000 Variable manufacturing overhead 3 18000 Total Incremental costs 66000 Incremental net operating income(loss) 24000 Income increases by $24000

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