Wear Company Is Operating at 70% of Its Manufacturing Capacity

question 14

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

---

Definitions:

Crisis Resolution

The process of identifying, confronting, and resolving psychological, social, or economic emergencies, restoring stability and equilibrium.

Favorable Outcome

A result or end-point that is beneficial, positive, or desirable in nature, often in the context of goals, plans, or expectations.

Maslow's Needs

A hierarchy of human needs proposed by Abraham Maslow, suggesting people are motivated to fulfill basic needs before moving on to other, more advanced needs.

Needs Fulfillment

The process of satisfying fundamental human needs, such as those for food, shelter, companionship, and esteem, which are essential for well-being and personal development.