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 Alpha

Question

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Answer 1

Question

Chapter 12, Problem 5F15

To determine

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 Alpha

Expert Solution & Answer

Answer to Problem 5F15

Solution:

The financial disadvantage of accepting the new customer’s order for Alpha is $ 145,000.

Explanation of Solution

The incremental net operating profit (loss) is the difference between incremental revenues and costs.

Alpha - Incremental Net operating profit (Loss) (in $)
Incremental Revenue ( $ 80/ unit X 10,000 additional units)		800,000
Less:
Incremental costs -
Direct material ( $ 30/ units X 10,000 additional units)	300,000
Direct labor ( $ 20/ unit X 10,000 additional units)	200,000
Variable manufacturing overhead ( $ 7/ unit X 10,000 additional units)	70,000
Variable selling expenses ( $ 12/ unit X 10,000 additional units)	120,000

Total incremental costs		(690,000)

Less: Foregone Sales revenue due to acceptance of order ( $ 120 per unit X 5,000 units )		(600,000)
Add: Decrease in costs related to the sales forgone		345,000

Alpha - Incremental net operating income (Loss)		(145,000)

Given, the information for the product Alpha −

Additional sales units = 10,000 units
Selling price per unit = $ 80 per unit
Direct Material per unit = $ 30 per unit
Direct Labor per unit = $ 20 per unit
Variable manufacturing overhead per unit = $ 7 per unit
Variable selling expenses per unit = $ 12 per unit
Foregone number of units due to acceptance of offer = 5,000 units
Sales price per unit for regular sales = $ 120 per unit

Calculations:

Incremental revenue

Incremental revenue = $ 80 per unit X 10,000 unitsIncremental revenue = $ 800,000

Incremental costs

Direct material = $ 30 per unit X 10,000 unitsDirect material = $ 300,000

Direct labor = $ 20 per unit X 10,000 unitsDirect labor = $ 200,000

Variable manufacturing overhead per unit = $ 7 per unit X 10,000 unitsVariable manufacturing overhead per unit = $ 70,000

Variable selling expenses per unit = $ 12 per unit X 10,000 unitsVariable selling expenses per unit = $ 120,000

Total incremental costs = Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses

Total incremental costs = $ 300,000 +$ 200,000 + $ 70,000 + $ 120,000Total incremental costs = $ 690,000

Foregone Sales revenue due to acceptance of offer

Foregone Sales revenue due to acceptance of offer = $ 120 per unit X 5,000 unitsForegone Sales revenue due to acceptance of offer = $ 600,000

Decrease in cost due to sales forgone −

Decrease in cost due to sales forgone = ( Direct material per unit + Direct Labor per unit + Variable manufacturing+ Variable selling expenses ) X Sales forgone UnitsDecrease in cost due to sales forgone = ( $ 30 + $ 20 + $ 7 + $ 12) X 5,000 unitsDecrease in cost due to sales forgone = $ 345,0000

Incremental Net operating income (Loss)

Incremental Net operating income (Loss) = Incremental revenue − Incremental costs −Foregone Sales revenue due to acceptance of offer +Decrease in cost due to sales forgoneIncremental Net operating income (Loss) = $ 800,000 − $ 690,000− $ 600,000+ $ 345,000Incremental Net operating income (Loss) = ($ 145,000)

Conclusion

Thus, the financial disadvantage of accepting the new customer’s order for Alpha = $ 145,000.

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Answer 2

Question

Chapter 12, Problem 5F15

To determine

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 Alpha

Expert Solution & Answer

Answer to Problem 5F15

Solution:

The financial disadvantage of accepting the new customer’s order for Alpha is $ 145,000.

Explanation of Solution

The incremental net operating profit (loss) is the difference between incremental revenues and costs.

Alpha - Incremental Net operating profit (Loss) (in $)
Incremental Revenue ( $ 80/ unit X 10,000 additional units)		800,000
Less:
Incremental costs -
Direct material ( $ 30/ units X 10,000 additional units)	300,000
Direct labor ( $ 20/ unit X 10,000 additional units)	200,000
Variable manufacturing overhead ( $ 7/ unit X 10,000 additional units)	70,000
Variable selling expenses ( $ 12/ unit X 10,000 additional units)	120,000

Total incremental costs		(690,000)

Less: Foregone Sales revenue due to acceptance of order ( $ 120 per unit X 5,000 units )		(600,000)
Add: Decrease in costs related to the sales forgone		345,000

Alpha - Incremental net operating income (Loss)		(145,000)

Given, the information for the product Alpha −

Additional sales units = 10,000 units
Selling price per unit = $ 80 per unit
Direct Material per unit = $ 30 per unit
Direct Labor per unit = $ 20 per unit
Variable manufacturing overhead per unit = $ 7 per unit
Variable selling expenses per unit = $ 12 per unit
Foregone number of units due to acceptance of offer = 5,000 units
Sales price per unit for regular sales = $ 120 per unit

Calculations:

Incremental revenue

Incremental revenue = $ 80 per unit X 10,000 unitsIncremental revenue = $ 800,000

Incremental costs

Direct material = $ 30 per unit X 10,000 unitsDirect material = $ 300,000

Direct labor = $ 20 per unit X 10,000 unitsDirect labor = $ 200,000

Variable manufacturing overhead per unit = $ 7 per unit X 10,000 unitsVariable manufacturing overhead per unit = $ 70,000

Variable selling expenses per unit = $ 12 per unit X 10,000 unitsVariable selling expenses per unit = $ 120,000

Total incremental costs = Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses

Total incremental costs = $ 300,000 +$ 200,000 + $ 70,000 + $ 120,000Total incremental costs = $ 690,000

Foregone Sales revenue due to acceptance of offer

Foregone Sales revenue due to acceptance of offer = $ 120 per unit X 5,000 unitsForegone Sales revenue due to acceptance of offer = $ 600,000

Decrease in cost due to sales forgone −

Decrease in cost due to sales forgone = ( Direct material per unit + Direct Labor per unit + Variable manufacturing+ Variable selling expenses ) X Sales forgone UnitsDecrease in cost due to sales forgone = ( $ 30 + $ 20 + $ 7 + $ 12) X 5,000 unitsDecrease in cost due to sales forgone = $ 345,0000

Incremental Net operating income (Loss)

Incremental Net operating income (Loss) = Incremental revenue − Incremental costs −Foregone Sales revenue due to acceptance of offer +Decrease in cost due to sales forgoneIncremental Net operating income (Loss) = $ 800,000 − $ 690,000− $ 600,000+ $ 345,000Incremental Net operating income (Loss) = ($ 145,000)

Conclusion

Thus, the financial disadvantage of accepting the new customer’s order for Alpha = $ 145,000.

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Answer 3

Question

Chapter 12, Problem 5F15

To determine

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 Alpha

Expert Solution & Answer

Answer to Problem 5F15

Solution:

The financial disadvantage of accepting the new customer’s order for Alpha is $ 145,000.

Explanation of Solution

The incremental net operating profit (loss) is the difference between incremental revenues and costs.

Alpha - Incremental Net operating profit (Loss) (in $)
Incremental Revenue ( $ 80/ unit X 10,000 additional units)		800,000
Less:
Incremental costs -
Direct material ( $ 30/ units X 10,000 additional units)	300,000
Direct labor ( $ 20/ unit X 10,000 additional units)	200,000
Variable manufacturing overhead ( $ 7/ unit X 10,000 additional units)	70,000
Variable selling expenses ( $ 12/ unit X 10,000 additional units)	120,000

Total incremental costs		(690,000)

Less: Foregone Sales revenue due to acceptance of order ( $ 120 per unit X 5,000 units )		(600,000)
Add: Decrease in costs related to the sales forgone		345,000

Alpha - Incremental net operating income (Loss)		(145,000)

Given, the information for the product Alpha −

Additional sales units = 10,000 units
Selling price per unit = $ 80 per unit
Direct Material per unit = $ 30 per unit
Direct Labor per unit = $ 20 per unit
Variable manufacturing overhead per unit = $ 7 per unit
Variable selling expenses per unit = $ 12 per unit
Foregone number of units due to acceptance of offer = 5,000 units
Sales price per unit for regular sales = $ 120 per unit

Calculations:

Incremental revenue

Incremental revenue = $ 80 per unit X 10,000 unitsIncremental revenue = $ 800,000

Incremental costs

Direct material = $ 30 per unit X 10,000 unitsDirect material = $ 300,000

Direct labor = $ 20 per unit X 10,000 unitsDirect labor = $ 200,000

Variable manufacturing overhead per unit = $ 7 per unit X 10,000 unitsVariable manufacturing overhead per unit = $ 70,000

Variable selling expenses per unit = $ 12 per unit X 10,000 unitsVariable selling expenses per unit = $ 120,000

Total incremental costs = Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses

Total incremental costs = $ 300,000 +$ 200,000 + $ 70,000 + $ 120,000Total incremental costs = $ 690,000

Foregone Sales revenue due to acceptance of offer

Foregone Sales revenue due to acceptance of offer = $ 120 per unit X 5,000 unitsForegone Sales revenue due to acceptance of offer = $ 600,000

Decrease in cost due to sales forgone −

Decrease in cost due to sales forgone = ( Direct material per unit + Direct Labor per unit + Variable manufacturing+ Variable selling expenses ) X Sales forgone UnitsDecrease in cost due to sales forgone = ( $ 30 + $ 20 + $ 7 + $ 12) X 5,000 unitsDecrease in cost due to sales forgone = $ 345,0000

Incremental Net operating income (Loss)

Incremental Net operating income (Loss) = Incremental revenue − Incremental costs −Foregone Sales revenue due to acceptance of offer +Decrease in cost due to sales forgoneIncremental Net operating income (Loss) = $ 800,000 − $ 690,000− $ 600,000+ $ 345,000Incremental Net operating income (Loss) = ($ 145,000)

Conclusion

Thus, the financial disadvantage of accepting the new customer’s order for Alpha = $ 145,000.

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Answer 4

Question

Chapter 12, Problem 5F15

To determine

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 Alpha

Expert Solution & Answer

Answer to Problem 5F15

Solution:

The financial disadvantage of accepting the new customer’s order for Alpha is $ 145,000.

Explanation of Solution

The incremental net operating profit (loss) is the difference between incremental revenues and costs.

Alpha - Incremental Net operating profit (Loss) (in $)
Incremental Revenue ( $ 80/ unit X 10,000 additional units)		800,000
Less:
Incremental costs -
Direct material ( $ 30/ units X 10,000 additional units)	300,000
Direct labor ( $ 20/ unit X 10,000 additional units)	200,000
Variable manufacturing overhead ( $ 7/ unit X 10,000 additional units)	70,000
Variable selling expenses ( $ 12/ unit X 10,000 additional units)	120,000

Total incremental costs		(690,000)

Less: Foregone Sales revenue due to acceptance of order ( $ 120 per unit X 5,000 units )		(600,000)
Add: Decrease in costs related to the sales forgone		345,000

Alpha - Incremental net operating income (Loss)		(145,000)

Given, the information for the product Alpha −

Additional sales units = 10,000 units
Selling price per unit = $ 80 per unit
Direct Material per unit = $ 30 per unit
Direct Labor per unit = $ 20 per unit
Variable manufacturing overhead per unit = $ 7 per unit
Variable selling expenses per unit = $ 12 per unit
Foregone number of units due to acceptance of offer = 5,000 units
Sales price per unit for regular sales = $ 120 per unit

Calculations:

Incremental revenue

Incremental revenue = $ 80 per unit X 10,000 unitsIncremental revenue = $ 800,000

Incremental costs

Direct material = $ 30 per unit X 10,000 unitsDirect material = $ 300,000

Direct labor = $ 20 per unit X 10,000 unitsDirect labor = $ 200,000

Variable manufacturing overhead per unit = $ 7 per unit X 10,000 unitsVariable manufacturing overhead per unit = $ 70,000

Variable selling expenses per unit = $ 12 per unit X 10,000 unitsVariable selling expenses per unit = $ 120,000

Total incremental costs = Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses

Total incremental costs = $ 300,000 +$ 200,000 + $ 70,000 + $ 120,000Total incremental costs = $ 690,000

Foregone Sales revenue due to acceptance of offer

Foregone Sales revenue due to acceptance of offer = $ 120 per unit X 5,000 unitsForegone Sales revenue due to acceptance of offer = $ 600,000

Decrease in cost due to sales forgone −

Decrease in cost due to sales forgone = ( Direct material per unit + Direct Labor per unit + Variable manufacturing+ Variable selling expenses ) X Sales forgone UnitsDecrease in cost due to sales forgone = ( $ 30 + $ 20 + $ 7 + $ 12) X 5,000 unitsDecrease in cost due to sales forgone = $ 345,0000

Incremental Net operating income (Loss)

Incremental Net operating income (Loss) = Incremental revenue − Incremental costs −Foregone Sales revenue due to acceptance of offer +Decrease in cost due to sales forgoneIncremental Net operating income (Loss) = $ 800,000 − $ 690,000− $ 600,000+ $ 345,000Incremental Net operating income (Loss) = ($ 145,000)

Conclusion

Thus, the financial disadvantage of accepting the new customer’s order for Alpha = $ 145,000.

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Answer 5

Chapter 12, Problem 5F15

To determine

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 Alpha

Expert Solution & Answer

Answer to Problem 5F15

Solution:

The financial disadvantage of accepting the new customer’s order for Alpha is $ 145,000.

Explanation of Solution

The incremental net operating profit (loss) is the difference between incremental revenues and costs.

Alpha - Incremental Net operating profit (Loss) (in $)
Incremental Revenue ( $ 80/ unit X 10,000 additional units)		800,000
Less:
Incremental costs -
Direct material ( $ 30/ units X 10,000 additional units)	300,000
Direct labor ( $ 20/ unit X 10,000 additional units)	200,000
Variable manufacturing overhead ( $ 7/ unit X 10,000 additional units)	70,000
Variable selling expenses ( $ 12/ unit X 10,000 additional units)	120,000

Total incremental costs		(690,000)

Less: Foregone Sales revenue due to acceptance of order ( $ 120 per unit X 5,000 units )		(600,000)
Add: Decrease in costs related to the sales forgone		345,000

Alpha - Incremental net operating income (Loss)		(145,000)

Given, the information for the product Alpha −

Additional sales units = 10,000 units
Selling price per unit = $ 80 per unit
Direct Material per unit = $ 30 per unit
Direct Labor per unit = $ 20 per unit
Variable manufacturing overhead per unit = $ 7 per unit
Variable selling expenses per unit = $ 12 per unit
Foregone number of units due to acceptance of offer = 5,000 units
Sales price per unit for regular sales = $ 120 per unit

Calculations:

Incremental revenue

Incremental revenue = $ 80 per unit X 10,000 unitsIncremental revenue = $ 800,000

Incremental costs

Direct material = $ 30 per unit X 10,000 unitsDirect material = $ 300,000

Direct labor = $ 20 per unit X 10,000 unitsDirect labor = $ 200,000

Variable manufacturing overhead per unit = $ 7 per unit X 10,000 unitsVariable manufacturing overhead per unit = $ 70,000

Variable selling expenses per unit = $ 12 per unit X 10,000 unitsVariable selling expenses per unit = $ 120,000

Total incremental costs = Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses

Total incremental costs = $ 300,000 +$ 200,000 + $ 70,000 + $ 120,000Total incremental costs = $ 690,000

Foregone Sales revenue due to acceptance of offer

Foregone Sales revenue due to acceptance of offer = $ 120 per unit X 5,000 unitsForegone Sales revenue due to acceptance of offer = $ 600,000

Decrease in cost due to sales forgone −

Decrease in cost due to sales forgone = ( Direct material per unit + Direct Labor per unit + Variable manufacturing+ Variable selling expenses ) X Sales forgone UnitsDecrease in cost due to sales forgone = ( $ 30 + $ 20 + $ 7 + $ 12) X 5,000 unitsDecrease in cost due to sales forgone = $ 345,0000

Incremental Net operating income (Loss)

Incremental Net operating income (Loss) = Incremental revenue − Incremental costs −Foregone Sales revenue due to acceptance of offer +Decrease in cost due to sales forgoneIncremental Net operating income (Loss) = $ 800,000 − $ 690,000− $ 600,000+ $ 345,000Incremental Net operating income (Loss) = ($ 145,000)

Conclusion

Thus, the financial disadvantage of accepting the new customer’s order for Alpha = $ 145,000.

Answer 6

Chapter 12, Problem 5F15

To determine

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 Alpha

Expert Solution & Answer

Answer to Problem 5F15

Solution:

The financial disadvantage of accepting the new customer’s order for Alpha is $ 145,000.

Explanation of Solution

The incremental net operating profit (loss) is the difference between incremental revenues and costs.

Alpha - Incremental Net operating profit (Loss) (in $)
Incremental Revenue ( $ 80/ unit X 10,000 additional units)		800,000
Less:
Incremental costs -
Direct material ( $ 30/ units X 10,000 additional units)	300,000
Direct labor ( $ 20/ unit X 10,000 additional units)	200,000
Variable manufacturing overhead ( $ 7/ unit X 10,000 additional units)	70,000
Variable selling expenses ( $ 12/ unit X 10,000 additional units)	120,000

Total incremental costs		(690,000)

Less: Foregone Sales revenue due to acceptance of order ( $ 120 per unit X 5,000 units )		(600,000)
Add: Decrease in costs related to the sales forgone		345,000

Alpha - Incremental net operating income (Loss)		(145,000)

Given, the information for the product Alpha −

Additional sales units = 10,000 units
Selling price per unit = $ 80 per unit
Direct Material per unit = $ 30 per unit
Direct Labor per unit = $ 20 per unit
Variable manufacturing overhead per unit = $ 7 per unit
Variable selling expenses per unit = $ 12 per unit
Foregone number of units due to acceptance of offer = 5,000 units
Sales price per unit for regular sales = $ 120 per unit

Calculations:

Incremental revenue

Incremental revenue = $ 80 per unit X 10,000 unitsIncremental revenue = $ 800,000

Incremental costs

Direct material = $ 30 per unit X 10,000 unitsDirect material = $ 300,000

Direct labor = $ 20 per unit X 10,000 unitsDirect labor = $ 200,000

Variable manufacturing overhead per unit = $ 7 per unit X 10,000 unitsVariable manufacturing overhead per unit = $ 70,000

Variable selling expenses per unit = $ 12 per unit X 10,000 unitsVariable selling expenses per unit = $ 120,000

Total incremental costs = Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses

Total incremental costs = $ 300,000 +$ 200,000 + $ 70,000 + $ 120,000Total incremental costs = $ 690,000

Foregone Sales revenue due to acceptance of offer

Foregone Sales revenue due to acceptance of offer = $ 120 per unit X 5,000 unitsForegone Sales revenue due to acceptance of offer = $ 600,000

Decrease in cost due to sales forgone −

Decrease in cost due to sales forgone = ( Direct material per unit + Direct Labor per unit + Variable manufacturing+ Variable selling expenses ) X Sales forgone UnitsDecrease in cost due to sales forgone = ( $ 30 + $ 20 + $ 7 + $ 12) X 5,000 unitsDecrease in cost due to sales forgone = $ 345,0000

Incremental Net operating income (Loss)

Incremental Net operating income (Loss) = Incremental revenue − Incremental costs −Foregone Sales revenue due to acceptance of offer +Decrease in cost due to sales forgoneIncremental Net operating income (Loss) = $ 800,000 − $ 690,000− $ 600,000+ $ 345,000Incremental Net operating income (Loss) = ($ 145,000)

Conclusion

Thus, the financial disadvantage of accepting the new customer’s order for Alpha = $ 145,000.

Answer 7

Chapter 12, Problem 5F15

To determine

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 Alpha

Answer 8

Expert Solution & Answer

Answer to Problem 5F15

Solution:

The financial disadvantage of accepting the new customer’s order for Alpha is $ 145,000.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

The incremental net operating profit (loss) is the difference between incremental revenues and costs.

Alpha - Incremental Net operating profit (Loss) (in $)
Incremental Revenue ( $ 80/ unit X 10,000 additional units)		800,000
Less:
Incremental costs -
Direct material ( $ 30/ units X 10,000 additional units)	300,000
Direct labor ( $ 20/ unit X 10,000 additional units)	200,000
Variable manufacturing overhead ( $ 7/ unit X 10,000 additional units)	70,000
Variable selling expenses ( $ 12/ unit X 10,000 additional units)	120,000

Total incremental costs		(690,000)

Less: Foregone Sales revenue due to acceptance of order ( $ 120 per unit X 5,000 units )		(600,000)
Add: Decrease in costs related to the sales forgone		345,000

Alpha - Incremental net operating income (Loss)		(145,000)

Given, the information for the product Alpha −

Additional sales units = 10,000 units
Selling price per unit = $ 80 per unit
Direct Material per unit = $ 30 per unit
Direct Labor per unit = $ 20 per unit
Variable manufacturing overhead per unit = $ 7 per unit
Variable selling expenses per unit = $ 12 per unit
Foregone number of units due to acceptance of offer = 5,000 units
Sales price per unit for regular sales = $ 120 per unit

Calculations:

Incremental revenue

Incremental revenue = $ 80 per unit X 10,000 unitsIncremental revenue = $ 800,000

Incremental costs

Direct material = $ 30 per unit X 10,000 unitsDirect material = $ 300,000

Direct labor = $ 20 per unit X 10,000 unitsDirect labor = $ 200,000

Variable manufacturing overhead per unit = $ 7 per unit X 10,000 unitsVariable manufacturing overhead per unit = $ 70,000

Variable selling expenses per unit = $ 12 per unit X 10,000 unitsVariable selling expenses per unit = $ 120,000

Total incremental costs = Direct material + Direct labor + Variable manufacturing overhead + Variable selling expenses

Total incremental costs = $ 300,000 +$ 200,000 + $ 70,000 + $ 120,000Total incremental costs = $ 690,000

Foregone Sales revenue due to acceptance of offer

Foregone Sales revenue due to acceptance of offer = $ 120 per unit X 5,000 unitsForegone Sales revenue due to acceptance of offer = $ 600,000

Decrease in cost due to sales forgone −

Decrease in cost due to sales forgone = ( Direct material per unit + Direct Labor per unit + Variable manufacturing+ Variable selling expenses ) X Sales forgone UnitsDecrease in cost due to sales forgone = ( $ 30 + $ 20 + $ 7 + $ 12) X 5,000 unitsDecrease in cost due to sales forgone = $ 345,0000

Incremental Net operating income (Loss)

Incremental Net operating income (Loss) = Incremental revenue − Incremental costs −Foregone Sales revenue due to acceptance of offer +Decrease in cost due to sales forgoneIncremental Net operating income (Loss) = $ 800,000 − $ 690,000− $ 600,000+ $ 345,000Incremental Net operating income (Loss) = ($ 145,000)