Question
Harmon Tool and Die (HTD) produces metal fittings, which it supplies to various manufacturing firms. HTD has prepared the following budgeted income statement for the
Harmon Tool and Die (HTD) produces metal fittings, which it supplies to various manufacturing firms. HTD has prepared the following budgeted income statement for the next quarter when it expects to sell 50,000 units. HTD uses a Just-in-Time inventory system and has negligible inventory balances.
Amount | Per Unit | |
Revenues | $1,500,000 | $30.00 |
CGS | $1,100,000 | $22.00 |
Gross Margin | $400,000 | $8.00 |
Op Expense | $250,000 | $5.00 |
Net Income | $150,000 | $3.00 |
Manufacturing fixed costs are $330,000. This includes charges for depreciation on plant and machinery plus other factory items. Administrative fixed costs (operating expenses) are estimated at $95,000.
Krebs Inc., not currently an HTD customer, has requested HTD supply 13,000 fittings next quarter at a price of $22.50 per unit. HTD currently has 20,000 units of excess capacity.The Krebs order will only incur variable manufacturing costs. Order processing and handling for the order will result in incremental administrative costs of $22,568.
If the order is accepted what is the incremental profit HTD should expect to earn?
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