Question

In: Accounting

Bridger Company currently has the capacity to manufacture 250,000 widgets a year. The widgets normally sell...

Bridger Company currently has the capacity to manufacture 250,000 widgets a year. The widgets normally sell for $8.00 each.

Bridger Company has the following costs related to manufacturing and selling 200,000 widgets:

Direct materials $300,000
Direct labor $540,000
Variable manufacturing overhead $180,000
Depreciation on equipment only used for the widgets $40,000
Depreciation on factory $100,000
Salary of widget production manager $70,000
Variable selling costs (commissions) $60,000
Fixed selling costs $80,000
Total $1,370,000


Assume Minot Inc. asks Bridger to complete a manufacture a special order of 10,000 widgets. Minot is willing to pay $5.50 per widget (and the sales commission will apply on this special order).

By how much will Bridger's income change if they accept the special order?

a.

$4,000 increase
b.

$1,000 increase
c.

$13,500 decrease
d.

$1,000 decrease
e.

$25,000 decrease

Solutions

Expert Solution

/200000
Amount Cost Type Per Unit Cost
Direct materials $300,000 Variable $1.50
Direct labor $540,000 Variable $2.70
Variable manufacturing overhead $180,000 Variable $0.90
Depreciation on equipment only used for the widgets $40,000 Fixed
Depreciation on factory $100,000 Fixed
Salary of widget production manager $70,000 Fixed
Variable selling costs (commissions) $60,000 Variable $0.30
Fixed selling costs $80,000 Fixed
Total $1,370,000
Fixed Cost are Irrelevant for the Special Order Decision Since they will incurr in any case
Revenue from Special Order(10000*5.50) 55000
Less: Variable Cost to be Incurred
Direct materials $15,000
Direct labor $27,000
Variable manufacturing overhead $9,000
Variable selling costs (commissions) $3,000
Increase in Income by $1,000
Answer is B

ekkarill92 answered 1 month ago
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