Question
The ABC Company is in the electronics business with six product lines. The Income Statement for the Modem Product Line is: Revenues 200,000 units, $110
The ABC Company is in the electronics business with six product lines. The Income Statement for the Modem Product Line is:
Revenues 200,000 units, $110 average selling price $22,000,000 Variable Costs: Direct Material - $35 per modem 7,000,000 Direct Labor - $10 per modem 2,000,000 Variable Overhead - $10 per modem 2,000,000 Sales Commission 20% of revenues 4,400,000 Total Variable Costs 15,400,000 Contribution Margin 6,600,000 Fixed Costs Equipment Depreciation 2,000,000 Allocation of Administration Costs 1,500,000 Operating Income $ 3,100,000
ABC has been approached about providing 3,000 modems at a special price of $75 each. The sales rep has agreed to a flat commission of $5,000 instead of the standard 20%. ABC has the capacity and staffing in place to produce the additional modems. The direct material, direct labor and variable overhead costs are relevant.
What is the incremental Operating Income if the special order of 3,000 modems is accepted?
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