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Required: 1. Compute income from the special offer. 2. Should the company accept or reject the special offer?

Required: 1. Compute income from the special offer. 2. Should the company accept or reject the special offer?

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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Sales (460,000 units) Variable costs Direct materials Direct labor Variable overhead Contribution margin Fixed costs Fixed overhead Fixed general and administrative Income $ 6.00 1.45 0.25 0.70 3.60 0.30 0.25 $ 3.05 ● $ 2,760,000 667,000 115,000 322,000 1,656,000 A potential customer offers to buy 56,000 units for $3.00 each. These sales would not affect the company's sales through its normal channels. Details about the special offer follow. 138,000 115,000 $ 1,403,000 . Direct materials cost per unit and variable overhead cost per unit would not change. • Direct labor cost per unit would be $0.33 because the offer would require overtime pay. ● Accepting the offer would require incremental fixed general and administrative costs of $5,600. Accepting the offer would require no incremental fixed overhead costs. Required: 1. Compute income from the special offer. 2. Should the company accept or reject the special offer?
Transcribed Image Text:Sales (460,000 units) Variable costs Direct materials Direct labor Variable overhead Contribution margin Fixed costs Fixed overhead Fixed general and administrative Income $ 6.00 1.45 0.25 0.70 3.60 0.30 0.25 $ 3.05 ● $ 2,760,000 667,000 115,000 322,000 1,656,000 A potential customer offers to buy 56,000 units for $3.00 each. These sales would not affect the company's sales through its normal channels. Details about the special offer follow. 138,000 115,000 $ 1,403,000 . Direct materials cost per unit and variable overhead cost per unit would not change. • Direct labor cost per unit would be $0.33 because the offer would require overtime pay. ● Accepting the offer would require incremental fixed general and administrative costs of $5,600. Accepting the offer would require no incremental fixed overhead costs. Required: 1. Compute income from the special offer. 2. Should the company accept or reject the special offer?
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