A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: $$\begin{array} { l r }
\text { Direct materials } & \$ 4 \
\text { Direct labor } & 10 \
\text { Variable overhead } & 8 \
\text { Fixed overhead } & 6
\end{array}$$ A foreign company wants to purchase 2,000 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is
A) $6,000.
B) $2,000.
C) $(6,000).
D) $(2,000).

Question

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: $$\begin{array} { l r } 
\text { Direct materials } & \$ 4 \
\text { Direct labor } & 10 \
\text { Variable overhead } & 8 \
\text { Fixed overhead } & 6
\end{array}$$ A foreign company wants to purchase 2,000 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is
A) $6,000.
B) $2,000.
C) $(6,000).
D) $(2,000).

Quizplus · Accepted Answer

The incremental income from accepting the order can be calculated as follows: Incremental revenue from the special order is 2,000 units * $25 = $50,000. Incremental costs include: - Direct materials: 2,000 units * $4 = $8,000 - Direct labor: 2,000 units * $10 = $20,000 - Variable overhead: 2,000 units * $8 = $16,000 - Special stamping machine: $4,000 Fixed overhead does not change with the order, so it's not considered incremental. Total incremental costs = $8,000 + $20,000 + $16,000 + $4,000 = $48,000. Incremental income = Incremental revenue - Incremental costs = $50,000 - $48,000 = $2,000.

A Company Contemplating the Acceptance of a Special Order Has