
Concept explainers
Concept Introduction:
Financial advantage (disadvantage): Financial advantage (disadvantage) refers to the incremental profit or loss, a company will earn in situations like acceptance of a special order, dropping of a business line, etc.
It is calculated by only considering the relevant costs. The incremental revenues and incremental costs are taken together to calculate financial advantage or disadvantage. Financial advantage refers to incremental net operating income and financial disadvantage refers to incremental net operating loss.
To calculate:
Financial advantage (disadvantage) of accepting the new customer’s order for Beta

Answer to Problem 4F15
Solution:
The financial disadvantage of accepting the new customer’s order for Beta is $ 5,000.
Explanation of Solution
The incremental net operating profit (loss) is the difference between incremental revenues and costs.
Beta - Incremental Net operating profit (Loss) (in $) | ||
Incremental Revenue ( $ 39/ unit X 5,000 additional units) | 195,000 | |
Less: | ||
Incremental costs - | ||
Direct material ( $ 12/ units X 5,000 additional units) | 60,000 | |
Direct labor ( $ 15/ unit X 5,000 additional units) | 75,000 | |
Variable manufacturing |
25,000 | |
Variable selling expenses ( $8/ unit X 5,000 additional units) | 40,000 | |
Total incremental costs | 200,000 | |
Beta-Incremental net operating income (loss) | (5,000) |
Given, the information for the product Beta −
- Additional sales units = 5,000 units
- Selling price per unit = $ 39 per unit
- Direct Material per unit = $ 12 per unit
- Direct Labor per unit = $ 15 per unit
- Variable manufacturing overhead per unit = $ 5 per unit
- Variable selling expenses per unit = $ 8 per unit
Calculations:
- Incremental revenue
- Incremental costs
- Incremental Net operating income (Loss)
Thus, the financial disadvantage of accepting the new customer’s order for Beta = $ 5,000.
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