Company A can make 1,000 towels per month. They sell 850 towels per month to department...

Company A can make 1,000 towels per month. They sell 850 towels per month to department stores at $8 per towel. The company's cost per towel based on making 1,000 towels is:

Prime costs $4

Overhead costs (75% fixed at a volume of 1,000 towels) $2

W Inc. offers to buy 150 towels with special lettering for $5 per towel. The special lettering will cost Company A $25 in total.

Determine Company As incremental profit or loss if the W offer is accepted:

Expert Solution

		1,000
	Per	Units
	Unit	Per Year
Prime cost	$4.00	$ 4,000
Variable manufacturing overhead	$0.50	500
Fixed manufacturing overhead	$1.50	1,500
Total costs	$ 6.00	$ 6,000

Total relevant cost is the variable cost		150 units
Prime cost	$4.00	$600
Variable manufacturing overhead	$0.50	$75
Total variable cost	$4.50	$675
Additional cost of Special lettering		$25	in total
Total cost		$700
Sales (150 x $5)		$750
incremental profit		$50

Determine Company As incremental profit or loss if the W offer is accepted:			$50

ekkarill92 answered 2 years ago

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