Question

Colortrigon Company makes a variety of paper products. One product is 30 lb copier paper, packaged 3,000 sheets to a box. One box normally sells for $20. A large bank offered to purchase 6,000 boxes at $15 per box. Costs per box are as follows: Direct materials $6 Direct labor 2 Variable overhead 2 Fixed overhead 3 No variable marketing costs would be incurred on the order. The company is operating significantly below the maximum productive capacity. No fixed costs are avoidable. Should Colortrigon accept the order?
a.Yes, income will increase by $19,000.
b.No, income will decrease by $43,000.
c.No, income will decrease by $86,000.
d.Yes, income will increase by $30,000.
e.It doesn't matter; there will be no impact on income.

Answer 1

Answer:

d.Yes, income will increase by $30,000

Explanation:

The net profit from this order = Revenue – all expense related = number of unit sold x (price per unit – cost per unit) =  

6,000 boxes x (price $15 – Direct materials $6 - Direct labor $2 - Variable overhead $2 - Fixed overhead $3 but avoidable) = 6000 x (15-6-2-2-0) = $30,000