Wade Company is operating at 75% of its manufacturing capacity of 140,000 product units per year. A customer has offered to buy an additional 20,000 units at $32 each and sell them outside the country so as not to compete with Wade. The following data are available:Costs at 75% capacity:Per Unit TotalDirect materials$12.00 $1,260,000 Direct labor 9.00 945,000 Overhead (fixed and variable) 15.00 1,575,000 Totals$36.00 $3,780,000 In producing 20,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $6 per unit would be incurred. What is the effect on income if Wade accepts this order?
A. Income will increase by $5 per unit.
B. Income will increase by $4 per unit.
C. Income will decrease by $5 per unit.
D. Income will increase by $11 per unit.
E. Income will decrease by $4 per unit.
Answer: A
Capacity: 140,000 units - .75(140,000) units = 35,000 unit capacity remaining
Relevant costs: $12 + $9 + $6 = $27 per unit
Effect on income: $32 - $27 = $5 increase per unit
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