Question - The following information relates to a product produced by Bayfield Company:
|
Direct materials
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$50
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|
Direct labor
|
35
|
|
Variable overhead
|
30
|
|
Fixed overhead
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40
|
|
Unit cost
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$155
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Fixed selling costs are $1,000,000 per year. Although production capacity is 900,000 units per year, Bayfield expects to produce only 800,000 units next year. The product normally sells for $180 each. A customer has offered to buy 60,000 units for $150 each. The customer will pay the transportation charge on the units purchased.
Requirements:
Compute the effect on income if Bayfield accepts the special order.
If Bayfield accepts the special order, how much could normal sales drop before all of the differential profits disappear?