Arnold Sy operates a small machine shop. He manufactures one standard product available from many other similar businesses and he also manufactures products to customer order. His accountant prepared the following annual income statement shown below. Custom Sales 7 Standard Sales ' Total Sales ' P1,000.000 P500000 ' P1,500,000 Materials , 200,000 I 160,000 , 360,000 I Labor ' 400,000 - 130,000 , 530.000 Depreciation I 126,000 02,000 ' 193,000 7 Power ' 14,000 A 0,000 . 22,000 Rem ' 120.000 720.000 ' 140,000 Heat and Light 0 12,000 ' 2.000 0 14,000 other 0 0,000 I 180,000 > 26.000 Total ' 000,000 460,000 ' 1,340,000 income , 120,000 - 40,000 , 100,000 The depreciation charges are for machines used in the respective product lines. The power charge is appointed based on the estimate of power consumed. The rent for the building is space which has been leased for 10 years at 140,000 per year. The rent and heat and light are appointed to the product lines based on amount of oor space occupied. All other cost are current expenses identified with the product line incurring them. A valued custom parts customer asked Mr. Sy to manufacture 5,000 special units for him. Mr. Sy is working at capacity and would have to give up some other business to take this business. He cannot renege on custom orders already agreed to, but he could reduce the output of his standard product by about one-half for one year while producing the specially required custom part. The customer is willing to pay 140 for each part. The material cost will be about 40 per unit and the labor will be 72 per unit. Mr. Sy will have to spend 40,000 for a special device which will be discarded when the job is done. I. What is the incremental cost of the special order of 6,000 units? A. 600,000 B. 421,000 C. 779,000 D. 371,000 Answer: Solution