Aloha Swimwear has received a special order for 3,250 bikinis at a price of $60 each. The regular average selling price is $75 per suit. The unit product cost is broken down as follows: direct labor, $8.50; direct materials, $15.75; variable overhead, $3.75; and fixed overhead, $5.25. Aloha already budgeted its production at 12,000 suits. If the company has spare capacity, what will be the incremental contribution of the special order to operating profit?

A : $104,000.00

B : $38,187.50

C : $86,937.50

D : $48,750.00

Question

Business

Mr Kitty

8 May, 02:33

Aloha Swimwear has received a special order for 3,250 bikinis at a price of $60 each. The regular average selling price is $75 per suit. The unit product cost is broken down as follows: direct labor, $8.50; direct materials, $15.75; variable overhead, $3.75; and fixed overhead, $5.25. Aloha already budgeted its production at 12,000 suits. If the company has spare capacity, what will be the incremental contribution of the special order to operating profit?

A : $104,000.00

B : $38,187.50

C : $86,937.50

D : $48,750.00

+5

Answers (1)

Know the Answer?

Jazmine Mayo · Answer 1

The correct answer is A.

Explanation:

Giving the following information:

Aloha Swimwear has received a special order for 3,250 bikinis for $60 each.

Variable costs:

direct labor = $8.50

direct materials = $15.75

variable overhead = $3.75

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

Total variable cost per units = $28

The effect on income will equal the total contribution margin:

Total contribution margin = 3,250 * 60 - 3,250*28 = $104,000 increase