PROBLEM 16

# PROBLEM 16 - PROBLEM 15-38(45 MINUTES 1 The order will...

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1. The order will boost Heartland’s net income by \$13,950, as the following calculations show. Sales revenue. ............................... \$82,500 Less: Sales commissions (10%). ..... 8,250 \$74,250 Less manufacturing costs: Direct material. ......................... \$14,600 Direct labor. .............................. 28,000 Variable manufacturing overhead * 8,400 Total manufacturing costs 51,000 Income before taxes. ..................... \$ 23,250 Income taxes (40%). ...................... 9,30 0 Net income. ................................... \$ 13,950 *Based on an analysis of the year just ended, variable overhead is 30 percent of direct labor (\$1,125 ÷ \$3,750). For Premier’s Foods’ order: Direct-labor cost x .30 = \$28,000 x .30 = \$8,400. 2. Yes. Although this amount is below the \$82,500 full-cost price, the order is still profitable. Heartland can afford to pick up some additional business, because the company is operating at 75 percent of practical capacity. Sales revenue

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PROBLEM 16 - PROBLEM 15-38(45 MINUTES 1 The order will...

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