Reggie Corporation manufactures a single product with the following unit costs for 1,000 units: $\begin{array}{lr}
\text { Direct materials } & \$ 2,400 \
\text { Direct labour } & 960 \
\text { Factory overhead ( } 30 \% \text { variable) } & 1,800 \
\text { Selling expenses (50\% variable) } & 900 \
\text { Administrative expenses (10\% variable) } & 840 \
\text { Total per unit } & \$ 6.900
\end{array}$ Recently,a company approached Reggie Corporation about buying 100 units for $5,100 each.Currently,the models are sold to dealers for $7,800.Reggie Corporation's capacity is sufficient to produce the extra 100 units.No additional selling expenses would be incurred on the special order. Suppose the special order is accepted.How much will income change?
A) It will decrease by $180,000.
B) It will not change.
C) It will increase by $111,600.
D) It will increase by $398,400.

Question

Quizplus · Accepted Answer

The income will increase by $111,600 because the relevant costs for the special order are the variable costs. The variable costs per unit are $4,200 ($2,400 materials + $960 labor + $540 factory overhead + $450 selling expenses + $84 administrative expenses). The contribution margin per unit for the special order is $900 ($5,100 - $4,200). For 100 units, the increase in income is $90,000 ($900 x 100).

Reggie Corporation Manufactures a Single Product with the Following Unit