A new wholesaler has offered to buy 67,000 packages for $3.32 each. These markers would be marketed under the wholesaler’s name and would not affect Jones Products’ sales through its normal channels. A study of the costs of this additional business reveals the following:
a. Direct materials costs are 100% variable.
b. Per unit direct labor costs for the additional units would be 50% higher than normal because their production would require overtime pay at 1½ times the usual labor rate.
c. 20% of the normal annual overhead costs are fixed at any production level from 250,000 to 400,000 units. The remaining 80% of the annual overhead cost is variable with volume.
d. Accepting the new business would involve no additional selling expenses.
e. Accepting the new business would increase administrative expenses by a $3,000 fixed amount.