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Question
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:
| Costs at 70% Capacity: | Per Unit | Total |
| Direct materials | $28.00 | $1,528,800 |
| Direct labor | 00 | 163,800 |
| Overhead (fixed and variable) | 7.00 | 382,200 |
| Totals | $38.00 | $2,074,800 |
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?
Answer
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