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Question
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 | Total |
| Direct 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 decrease by $4 per unit.
B. Income will increase by $4 per unit.
C. Income will increase by $5 per unit.
D. Income will decrease by $5 per unit.
E. Income will increase by $11 per unit.
Answer
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