Question

Lakeside Inc. produces a product that currently sells for $68.40 per unit. Current production costs per unit include direct materials, $28; direct labor, $30; variable overhead, $14.00; and fixed overhead, $14.00. Product engineering has determined that certain production changes could refine the product quality and functionality. These new production changes would increase material and labor costs by 20% per unit.

Required:
a. What would be the incremental profit or loss if Lakeside could sell the refined version of its product for $76 per unit? (Round your final answer to 2 decimal places. Loss amounts should be indicated with a minus sign.)

	Incremental Profit (Loss) not attempted

Answer 1

Solution:
	CALCULATION OF THE INCREAMENTAL REVENUE OR LOSS
		Amount in $	Amount in $
	Selling price of new Product		$                       76.00
	Less: Revise Cost of Production
	Direct Materials ( $ 28 X 120%)	$                       33.60
	Direct Labours ($ 30 X 120%)	$                       36.00
	Variable Overhead	$                       14.00
	Fixed Overhead	$                       14.00
	Total Revise Cost of Production		$                       97.60
	Increamental Profit (Loss)		$                     (21.60)
Answer = There is loss of $ 21.60 Per Unit in new product