Reference no: EM13481808

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 the expected effect of accepting this special order on the following company's operating income.