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Question
Termus Industries is operating at 85% of its manufacturing capacity of 50,000 product units per year. A customer has offered to buy an additional 4,000 units at $25 each and sell them outside the country so as not to compete with Termus. The following data are available:
| Costs at 85% capacity: | Per Unit | Total |
| Direct materials | $10.00 | $425,000 |
| Direct labor | 00 | 340,000 |
| Overhead (fixed and variable) | 13.00 | 552,500 |
| Totals | $31.00 | $1,317,500 |
In producing 4,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $4 per unit would be incurred. What is the effect on income if Termus accepts this order?
A. Income will decrease by $6 per unit.
B. Income will increase by $6 per unit.
C. Income will increase by $7 per unit.
D. Income will decrease by $3 per unit.
E. Income will increase by $3 per unit.
Answer
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