Respuesta :
Answer:
Profit will increase by 5,975
Explanation:
From past year we can see that total variable cost will be:
Direct Material+Direct Labor+Variable Over head.
Total Variable Cost =100,000+20% of 20,000
Total Variable costs = 100,000+4000= 104,000
Per Unit Variable cost = Total Variable cost/Total Unit Produced
Per Unit Variable Cost = 104,000/16,000 = 6.5
If Benjamin accepts the offer results will be:
Sale (4,500*8.05) 36,225
Variable Cost (4,500*6.5) (29,250)
Incremental Fixed cost (650)
Incremental admin
and selling cost (350)
Operating Income 5,975
Answer: The answer is D increase by $6,975
Explanation:
Income statement
$
Revenue (16,000 × 10.25) 164,000
Direct Material 164,000
Direct Labour. 100,000
---------
Prime Cost 264,000
Overhead
Variable overhead 20,000
Selling &Administrative(fixed) 32,500
----------
52,500
Total Cost. 316,500
-------------
Operating income. (152,500)
----------------
Allocation of overhead cost on the basis of direct labour
$
Direct Labour. 100,000
Variable overhead( 0.2 × 20,000) 4,000
-----------
Total overhead. 104,000
---------------
Direct Labour = Total overhead / Total production
= 104,000/16,000
= 6.5
These variable cost is a relevant cost, we can now compare the estimated relevant cost with the relevant revenue if the order is accepted
$
Additional Revenue (4,500 × 8.05) 36,225
Less: unit purchased (4,500 × 6.5) 29,250
----------------
Excess of revenue over cost. 6,975
-------------------
Therefore the profit will be increased by $6,975
