Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but...

 

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Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases ar $50 per case. The direct materials equals $190,000, direct labor equals $100,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products. Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case. What is the additional operating income (loss) of accepting this offer? Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases ar $50 per case. The direct materials equals $190,000, direct labor equals $100,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products. Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case. What is the additional operating income (loss) of accepting this offer?

Answer rating: 100% (QA)

First lets calculate the total fixed overhead cost per year Total overhead cost 100000 Fixed overhea... View the full answer