managerial accounting 457643

Termus Industries is operating at 85% of its manufacturing capacity of 50,000 product units per year. A customer has offered to buy an additional 4,000 units at $25 each and sell them outside the country so as not to compete with Termus. The following data are available:

Costs at 85% Capacity. Per Unit. Total

Direct materials $10.00 $425,000

Direct labor 8.00 340,000

Overhead (fixed and variable) 13.00 552.500

Totals $31.00 $1,317,500

In producing 4,000 additional units, fixed overhead costs would remain at their current level but incremental variable overhead costs of $4 per unit would be incurred. What is the effect on income if Termus accepts this order?

Income will decrease by $6 per unit.

Income will increase by $6 per unit.

Income will increase by $7 per unit.

Income will decrease by $3 per unit.

Income will increase by $3 per unit.