Question

Piersall Company makes a variety of paper products. One product is 20 lb copier paper, packaged 5,000 sheets to a box. One box normally sells for $18. A large bank offered to purchase 3,000 boxes at $14 per box. Costs per box are as follows:

Direct materials $8Direct labor 3Variable overhead 1Fixed overhead 5No variable marketing costs would be incurred on the order. The company is operating significantly below the maximum productive capacity, but they are above breakeven. No fixed costs are avoidable.Should Piersall accept the order?a. It doesn't matter, there will be no impact on income b. No, income will decrease by $3,000 c. Yes, income will increase by $6,000 d. Yes, income will increase by $9,000 e. No, income will decrease by $6,000

Answer 1

Answer:

c. Yes, income will increase by $6,000

Explanation:

The computation is shown below:        

Sales revenue (3,000 × $14) $42,000

Expenses:  

Direct materials (3,000 × $8) - $24,000

Direct labor (3,000 × $3) - $9,000

Variable manufacturing overheads (3,000 × $1) - 3,000

Net income $6,000

Since the net income is comes positive that reflects that the income would increased by  $6,000