Wade Company Is Operating at 75% of Its Manufacturing Capacity

question 113

Multiple Choice

Wade Company is operating at 75% of its manufacturing capacity of 140,000 product units per year. A customer has offered to buy an additional 20,000 units at $32 each and sell them outside the country so as not to compete with Wade. The following data are available: $$\begin{array} { | l | r | r | } \hline \text { Costs at } 75 \% \text { capacity: } & \text { Per Unit } & { \text { Total } } \\\hline \text { Direct materials } & \$ 12.00 & \$ 1,260,000 \\\hline \text { Direct labor } & 9.00 & 945,000 \\\hline \text { Overhead (fixed and variable) } & \underline { 15.00 } & \underline { 1,575,000 } \\\hline \text { Totals } & \$ 36.00 & \$ 3,780,000 \\\hline\end{array}$$ In producing 20,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $6 per unit would be incurred. What is the effect on income if Wade accepts this order?

• A) Income will decrease by $4 per unit.
• B) Income will increase by $4 per unit.
• C) Income will increase by $5 per unit.
• D) Income will decrease by $5 per unit.
• E) Income will increase by $11 per unit.

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