Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units: $$\begin{array} { l r }
\text { Direct materials } & \$ 2,300 \
\text { Direct labor } & 960 \
\text { Factory overhead } ( 30 \% \text { variable } ) & 1,800 \
\text { Selling expenses } ( 50 \% \text { variable } ) & 900 \
\text { Admini strative expenses (10\% variable) } & 840 \
\text { Total per unit } & \$ 6,800
\end{array}$$ Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900. Zildjian Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
How much will income change if the special order is accepted?
A)no change
B)increase by $121,600
C)decrease by $180,000
D)increase by $76,600

Question

Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units: $$\begin{array} { l r } 
\text { Direct materials } & \$ 2,300 \
\text { Direct labor } & 960 \
\text { Factory overhead } ( 30 \% \text { variable } ) & 1,800 \
\text { Selling expenses } ( 50 \% \text { variable } ) & 900 \
\text { Admini strative expenses (10\% variable) } & 840 \
\text { Total per unit } & \$ 6,800
\end{array}$$ Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models are sold to dealers for $7,900. Zildjian Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order.
How much will income change if the special order is accepted?
A)no change
B)increase by $121,600
C)decrease by $180,000
D)increase by $76,600

Quizplus · Accepted Answer

The special order will contribute $2,800 per unit to income ($5,100 selling price - $2,300 variable costs). The 100 units will contribute a total of $280,000 to income. The company will incur $400 of additional fixed factory overhead costs ($1,800 x 100 units x 30% variable). The company will also incur $84 of additional fixed administrative expenses ($840 x 100 units x 10% variable). The net increase in income is $280,000 - $400 - $84 = $279,516.

Zildjian Corporation Manufactures a Single Product with the Following Unit