What impact would accepting the government contract

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Reference no: EM132816077

Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company's normal volume of 6,000 units per month are shown in the following table.

Unit manufacturing costs

Variable materials$51
Variable labor 76
Variable overhead 26
Fixed overhead 61
Total unit manufacturing costs $214
Unit marketing costs
Variable 26
Fixed 71
Total unit marketing costs 97
Total unit costs $311

Problem a. On March 1, the federal government offers Davis a contract to supply 1,000 units to military bases for a March 31 delivery. Because of an unusually large number of rush orders from its regular customers, Davis plans to produce 8,000 units during March, which will use all available capacity. If it accepts the government order, it would lose 1,000 units normally sold to regular customers to a competitor. The government contract would reimburse its "share of March manufacturing costs" plus pay a $49,000 fixed fee (profit). (No variable marketing costs would be incurred on the government's units.) Assuming that the government's "share of March manufacturing costs" will be the proportionate fixed manufacturing cost, what impact would accepting the government contract have on March income?

Reference no: EM132816077

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