Speedo produces signature goggles which it sells for $35.The company produces 15,000 pairs of these goggles annually but has the capacity to produce 20,000.An order for manufacturing and selling 1,000 pairs at $25 has been received from the U.S.Olympic swim team that would not disrupt current operations.Current costs for the signature goggles are as follows: $\begin{array}{lr}
\text { Direct materials } & \$ 6.00 \
\text { Direct labor } & 10.00 \
\text { Variable overhead } & 3.00 \
\text { Fixed overhead } & 8.00 \
\text { Total } & \$ 27.00
\end{array}$ In addition, the Olympic coach would like to add the U.S.Olympic logo to each pair which would require an additional $2 per pair of goggles in additional labor costs.The company would also have to rent a logo stamper to stamp the logo which would cost $600.Which statement is true with regard to this order?
A)Incremental profit will be $4,000.
B)Incremental costs will be $27,000.
C)Incremental costs will be $21,600.
D)Incremental costs will exceed incremental revenues by $4,600.

Question

Quizplus · Accepted Answer

Incremental costs for the special order are calculated as follows: - Direct materials: $6.00 x 1,000 = $6,000 - Direct labor: ($10.00 + $2.00 for the logo) x 1,000 = $12,000 - Variable overhead: $3.00 x 1,000 = $3,000 - Fixed overhead: Since the company is operating below capacity, the fixed overhead cost of $8.00 per pair does not increase with the additional order. - Additional cost for logo stamper: $600 Total incremental costs = $6,000 + $12,000 + $3,000 + $600 = $21,600.

Speedo Produces Signature Goggles Which It Sells for $35 In Addition, the Olympic Coach Would Like to Add the Produces