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Question
Highbank Company is operating at 80% of its manufacturing capacity of 62,000 product units per year. A customer has offered to buy an additional 10,000 units at $17 each and sell them outside the country so as not to compete with Highbank. The following data are available:
| Costs at 80% capacity: | Per Unit | Total |
| Direct materials | $4.00 | $198,400 |
| Direct labor | 00 | 99,200 |
| Overhead (fixed and variable) | 5.00 | 248,000 |
| Totals | $11.00 | $545,600 |
In producing 10,000 additional units fixed overhead costs would remain at their current level but incremental variable overhead costs of $0.75 per unit would be incurred. What is the effect on total income if Highbank accepts this order?
Answer
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