Question

LL company budgeted 100,000 units for production during 2019. The following cost per unit information is available: direct material = $5, direct labour = $10, variable manufacturing overhead = $4. Fixed manufacturing overhead for the year = $300,000. LL sells at $50 per unit, market price.

It received a special order for 10,000 units from a new customer in a country in which LL has never done business. This customer has offered special order price at $25 per unit. If LL accepts the order, it needs to incur $3 selling expenses per unit for this order; in addition, it must rent a machine specifically for this order, it costs $13,000. LL has enough capacity to accept the order, without affecting its normal production plan.

If LL accepts this order, then the incremental contribution the order is making = $.............

Answer 1

sales revenue ($25*10,000 units)	$250,000
less; variable costs
direct material ($5* 10,000)	(50,000)
direct labor ($10*10,000)	(100,000)
variable manufacturing overhead ($4*10,000)	(40,000)
fixed manufactuireng overhead	nil
rent expense	(13,000)
selling expense ($3*10,000)	(30,000)
incremental contribution	$17,000