Highbank Company Is Operating at 80% of Its Manufacturing Capacity

question 24

Essay

Highbank Company is operating at 80% of its manufacturing capacity of 62,000 product units per year.A customer has offered to buy an additional 10,000 units at $17 each and sell them outside the country so as not to compete with Highbank.The following data are available:
$$\begin{array} { l c r } \text { Costs at 80\%/ capacity: } & { \text { Per } } & \text { Total } \\& \text { Unit } & \\\text { Direct materials } & \$ 4.00 & \$ 198,400 \\\text { Direct labor } & 2.00 & 99,200 \\\text { Overhead (fixed and variable) } & \underline { 5 . 0 0 } & \underline { 248,000 } \\\text { Totals } & \underline { \$ 1 1 . 0 0 } & \underline{ \$ 545,600}\end{array}$$ In producing 10,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $0.75 per unit would be incurred.What is the effect on total income if Highbank accepts this order?

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Definitions:

First Year of Life

A critical period in human development marked by rapid physical and cognitive growth, along with significant emotional and psychological changes.

Anal Stage

The second stage in Freud's psychosexual development theory, occurring between 18 months and three years, where the child's libido is focused on the anus, and toilet training is a key experience.

Phallic Stage

Stage in which, according to Sigmund Freud, boys become focused on their penis and girls become aware that they do not have one. Girls are said to develop penis envy (that is, they desire to have a penis and feel cheated).