Hyde Farms Cost Factor Per Unit Direct materials 19 Direct l

Hyde Farms Cost Factor Per Unit Direct materials $19 Direct labor $11 Variable overhead $6 Fixed overhead $9 $45 Hyde Farms Inc. has a capacity of 100,000 units. The are currently producing and selling 90,000 units at $50 per unit. The cost of a unit at the present production level is provided in the analysis above. An order for 10,000 units has just been received from a foreign company at a price of $42 per unit. Freight costs of $2 per unit would be required. If Hyde farms accepts this order the incremental profit/loss on this order would be?

Solution

Incremental cost include the relevant cost of direct materials, direct labor and variable overhead and even includes the freight cost. Incremental revenue includes the sale revenue for the order.

Incremental cost per unit = $19+ $11+ $6 + $2 = $38

Incremental cost for 10,000 units = $380,000

Incremental revenue for 10,000 units = $420,000 ($42 x 10,000 units)

Incremental Profit = Incremental Revenue - Incremental cost = $420,000 - $380,000 = $40,000