10. normal, full costing and income effects Ralph produces and sells a wide variety of products. A new product proposal is under review. The tentative plan calls for production of 100 units of this new product. It will sell for 300 per unit. Ralph anticipates the following direct production costs: direct labor: 20 per unit; and direct material: 40 per unit. Overhead is described by an LLA of OV = F + 2DC, where DC denotes direct cost dollars

(i.e., the sum of direct labor and direct material cost). Ralph uses normal, full costing with an allocation rate of 500% of direct cost, i.e., 5DC. Finally, if this new product proposal is accepted, Ralph’s period costs will increase, for this period only, by a total of 5, 000.

(a) What is the estimated unit cost of this new product?

(b) By how much will Ralph’s accounting income change if this new product proposal is accepted?

(c) Suppose Ralph accepts this new product proposal, produces 100 units and incurs costs as described above. However, only 80 units sell this period. The remainder are sold next period, also at a price of 300 per unit. Determine the incremental effect on Ralph’s accounting income in each of the two periods.