Peters Company produces a product with the following unit
cost.
Direct Materials
$2.75
Direct Labour
$1.25
Variable Overhead
$4.00
Fixed Overhead
$2.50
Unit Cost
$10.50
Fixed selling costs are $600,000 per year and variable selling
costs are $1.50 per unit sold.
Production capacity is 500,000 units per year. However, the
company expects to produce only 300,000 units next year. The
product normally sells for $15 each. A customer has offered to buy
150,000 units for $10 each. The units would be sold in an area
outside the market area currently served.
Q. Total incremental costs associated with the special order
is?
a) $1,237,500
b) $1,342,000
c) $1,387,500
d) $1,425,000
Q. If the firm produces the special order, the effect on income
would be?e
a) $75,000 increase
b) $90,000 increase
c) $2,500 decrease
d) $12,500 decrease
Can you please explain how to get the answer, thank you.