Please explain for points! Anderson Manufacturing makes a single product. Budget
ID: 2634749 • Letter: P
Question
Please explain for points!
Anderson Manufacturing 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.
19.
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
Variable cost per unit = (150000+125000+235000)/100000
=$5.10 per unit
Total cost of accepting the new offer:
New Fixed cost = $(110000+50000)
=$160000
Total cost = (15000+100000)*5.10+160000
=$746500
Profit = 800000+7.5*15000-746500
=$166000
Therefore incremental loss = $(180000-166000)
=$(14000)
Hence, option (A) is the correct answer