Reference no: EM13611857

Company A is scheduled to produce 40,000 units and have thecapacity to produce 55,000 units. Budgeted cost for thisproduct are :
Unit Cost (per 40,000 units) Total
Variable manufacturingcosts.................................. $50 $2,000,000
Variable sellingexpenses........................................ 20 800,000
Fixed manufacturingcost........................................ 10 400,000
Fixed operatingexpenses........................................ 5 200,000
Total costs andexpenses......................................... $85 $3,400,000
Management is considering a "special order" from anothercompany B for an additional 10,000 units, which would carrycompany B's label. Company A sells the unit for in stores for$150, while B sells for $80. Because there is no salescommision with the special order, company A will incur sellingexpenses of only $5 per unit on these sales instead of the normal$20 it incurs. By accepting this order it will cause nochange in company A's fixed manufacturing costs or fixed operatingcosts.
**use incremental revenue and incremental costs to compute theexpected effect of accepting this special order on the followingcompany's operating income.