Wear Company Is Operating at 70% of Its Manufacturing Capacity

question 74

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:
$$\begin{array} { l r r } \text { Costs at 70\%/ Capacity: } & { \text { Per } } \\& \text { Unit } & \text { Total } \\\text { Direct materials } & \$ 28.00 & \$ 1,528,800 \\\text { Direct labor } & 3.00 & 163,800 \\\text { Overhead (fixed ard variable) } & 7.00 & 382,200 \\\text { Totals } & \$ 38.00 & \$ 2,074,800 \\\end{array}$$
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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Definitions:

Workplace Flexibility

Refers to the adaptability of working conditions that allows employees to balance work and personal responsibilities more effectively.

Labor Relations

The study and practice of managing unionized employment situations.

British Labor Union

Labor organizations in the United Kingdom, aimed at improving working conditions, wages, and the rights of workers through collective bargaining and political action.

Association

pertains to a group of individuals or organizations that come together with a common purpose or interest.