Wade Company Is Operating at 75% of Its Manufacturing Capacity

question 103

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:
$\begin{array}{lrr}\text { Costs at 75\%/ capacity: } &{ \text { Per } } & \\& \text { Unit } & \text { Total } \\\text { Direct materials } & \$ 12.00 & \$ 1,260,000 \\\text { Direct labor } & 9.00 & 945,000 \\\text { Overhead (fixed and variable) } & \underline{15.00} & \underline{1,575,000} \\\text { Totals } & \$ 36.00 & \$ 3,780,000\end{array}$
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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