Humes Corporation Makes a Range of Products

question 37

Essay

Humes Corporation makes a range of products.The company's predetermined overhead rate is $16 per direct labor-hour,which was calculated using the following budgeted data: Management is considering a special order for 700 units of product J45K at $64 each.The normal selling price of product J45K is $75 and the unit product cost is determined as follows: If the special order were accepted,normal sales of this and other products would not be affected.The company has ample excess capacity to produce the additional units.Assume that direct labor is a variable cost,variable manufacturing overhead is really driven by direct labor-hours,and total fixed manufacturing overhead would not be affected by the special order.
Required:
If the special order were accepted,what would be the impact on the company's overall profit?

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Definitions:

Income Tax

A tax levied by a government directly on income, especially an annual tax on personal income.

Horizontal Equity

The principle that individuals in similar financial conditions should be treated equally by the taxation system.

Vertical Equity

A principle in taxation that states taxpayers with a greater ability to pay should contribute more in taxes.

Regressive Tax

A tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers.