Wear Company Is Operating at 70% of Its Manufacturing Capacity

question 99

Essay

Wear Company is operating at 70% of its manufacturing capacity of 78,000 product units per year.A customer has offered to buy an additional 18,000 units at $41 each and sell them outside the country so as not to compete with Wear Company.The following data are available:
$\begin{array}{lrr}\text { Costs at 70\%/ capacity: } & { \text { Per } } & \text { Total } \\& \text { Unit } & \\\text { Direct materials } & \$ 28.00 & \$ 1,528,800 \\\text { Direct labor } & 3.00 & 163,800 \\\text { Overhead (fixed and variable) } & \underline{7.00} & \underline{\$ 382,200} \\{\text { Totals }} & \underline{\$ 38.00}& \underline{\$ 2.074 .800} \end{array}$ In producing 18,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $1.28 per unit would be incurred.What is the effect on total income if Wear Company accepts this order?

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