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Corporation C produces a chemical product which it sells to other manufacturers. In 2014, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $11.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials $6.00 Direct labor 1.20 Variable manufacturing overhead .80 Fixed manufacturing overhead .60 Total manufacturing costs $8.60 If the company processes the chemical further and manufactures a new product, the following additional costs per gallon will be incurred: Direct materials $1.80, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the new product at $15.00 per gallon. Instructions Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the new product.

Corporation C produces a chemical product which it sells to other manufacturers. In 2014, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $11.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials $6.00 Direct labor 1.20 Variable manufacturing overhead .80 Fixed manufacturing overhead .60 Total manufacturing costs $8.60 If the company processes the chemical further and manufactures a new product, the following additional costs per gallon will be incurred: Direct materials $1.80, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the new product at $15.00 per gallon. Instructions Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the new product.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Corporation C produces a chemical product which it sells to other manufacturers. In 2014, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $11.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials $6.00 Direct labor Variable manufacturing overhead .80 Fixed manufacturing overhead .60 Total manufacturing costs $8.60 1.20 If the company processes the chemical further and manufactures a new product, the following additional costs per gallon will be incurred: Direct materials $1.80, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the new product at $15.00 per gallon. Instructions Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the new product.
Transcribed Image Text:Corporation C produces a chemical product which it sells to other manufacturers. In 2014, the company incurred $344,000 of costs to produce 40,000 gallons of the chemical. The selling price of the chemical is $11.00 per gallon. The costs per unit to manufacture a gallon of the chemical are presented below: Direct materials $6.00 Direct labor Variable manufacturing overhead .80 Fixed manufacturing overhead .60 Total manufacturing costs $8.60 1.20 If the company processes the chemical further and manufactures a new product, the following additional costs per gallon will be incurred: Direct materials $1.80, Direct labor $.60, Variable manufacturing overhead $.50. No increase in fixed manufacturing overhead is expected. The company can sell the new product at $15.00 per gallon. Instructions Determine the incremental per gallon increase in net income and the total increase in net income if the company manufactures the new product.
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