Incremental Analysis 21-15 71. A company\'s unit costs based on 100,000 units ar

Question

Incremental Analysis 21-15 71. A company's unit costs based on 100,000 units are: $75 30 Variable costs 2 Fixed costs The normal unit sales price per unit is $165. A special order from a foreign company has been received for 5,000 units at $135 a unit. In order to fulfill the order, 3,000 units of regular sales would have to be foregone. The incremental profit (loss) from accepting the order would be a. $30,000 b. $(150,000). c. $180,000. d. $(90,000). Ans: A, LO 3, Bloom AP, Difficulity Medium, Min: 5, AACSB Analyhc. AICPA BB Resource Management, AICPA FN Decision Modeling, AICPA PC

Explanation / Answer

Option-a Particulars Amount $ Amount $ Direct materials     8,400.00 Direct labours 11,250.00 Variable overhead 12,600.00 Total additional/varaible/incremental cost to produce 10000 units    32,250.00 Less: Purchase price quoted by outside supplier 10000*2.85 -28,500.00 Decrease/(Increase) in costs of awarding contract to outside supplier      3,750.00 Note:Fixed overheads Fixed overheards (Fixed costs) are incurred irrespective of production and cant be linked to one product accoridngly if we produce on our own or outsource the production it does not make any difference So it was not taken into consideration

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