Solution
Reject order | Accept order | Incremental Revenue and costs | |
Revenues | $ 57,350.00 | $ 57,350.00 | |
Costs | $ 54,250.00 | $ (54,250.00) | |
Net Income / (loss) | $ 3,100.00 | $ 3,100.00 |
Requirement b
Yes
The offer should be accepted.
Working
Calculation of Additional Cost of Order | ||
Per Unit | Total | |
Direct material | $ 14.00 | $ 21,700 |
Direct labor | $ 14.00 | $ 21,700 |
Variable manufacturing overheads | $ 4.00 | $ 6,200 |
Additional cost | $ 3.00 | $ 4,650 |
Total Additional cost due to acceptance of order | $ 35.00 | $ 54,250 |
Fixed cost will not be incurred if the order is accepted.
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