Speedo Produces Signature Goggles Which It Sells for $35 In Addition, the Olympic Coach Would Like to Add the Company

question 53

Multiple Choice

Speedo produces signature goggles which it sells for $35. The company produces 15,000 pairs of these goggles annually but has the capacity to produce 20,000. An order for manufacturing and selling 1,000 pairs at $25 has been received from the U.S. Olympic swim team that would not disrupt current operations. Current costs for the signature goggles are as follows: $\begin{array}{lr}\text { Direct materials } & \$ 6.00 \\\text { Direct labor } & 10.00 \\\text { Variable overhead } & 3.00 \\\text { Fixed overhead } & \$ 8.00 \\\text { Total } & \$ 27.00\end{array}$ In addition, the Olympic coach would like to add the U.S. Olympic logo to each pair which would require an additional $2 per pair of goggles in additional labor costs. The company would also have to rent a logo stamper to stamp the logo which would cost $600. Which statement is true with regard to this order?

• A) Incremental profit will be $4,000.
• B) Incremental costs will be $27,000.
• C) Incremental costs will be $21,600.
• D) Incremental costs will exceed incremental revenues by $4,600.

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Definitions:

Contractual Obligation

A duty or responsibility one party owes to another under the terms of a contract.

Short-term Notes

Financial obligations or debts that are due to be paid within a year.

Long-term Notes

Financial obligations or loans with a repayment period extending beyond one year, often used for significant purchases or investments.