incremental revenue 457721

The Walter Jewelry Company produces a bracelet which normally sells for $79.95. The company produces 1,500 units annually but has the capacity to produce 2,000 units. A special order for manufacturing and selling 200 bracelets at $49.95 has been received which would not disrupt current operations. Current costs for the bracelet are as follows:

Direct materials $17.00

Direct labor 14.50

Variable overhead 4.00

Fixed overhead 5.00

Total $40.50

In addition, the customer would like to add a monogram to each bracelet which would require an additional $2 per unit in additional labor costs and Walter Company would also have to purchase a piece of equipment to create the monogram which would cost $1,600. This equipment would not have any other uses.

With regard to this special order only:

Answer

incremental revenues will exceed incremental costs by $2,490.

incremental revenues will exceed incremental costs by $890.

incremental revenues will exceed incremental costs by $2,890

incremental revenues will exceed incremental costs by $1,290