Answer:
Combined net income =$810,000
Explanation:
In order to carry out an incremental analysis, only relevant cash flows should be considered.
<em>The relevant cash flows from accepting the special order are the variable costs and the sales revenue plus the incremental cost of overhead and administrative cost . Please, note that the fixed costs are not relevant for this decision. Simply because they would be incurred either way.
</em>
The relevant cash flows include:
- The sales revenue
- The variable cost
- And the increase in overhead and administrative cost
Selling price per unit = $13
Variable cost per unit of additional sales
= (Direct material + Direct labour cost)/200,000 = 6
Analysis of incremental net income
$
Additional sales revenue ( 13×× 20,000) = 260,000
Incremental variable cost (6
× 20,000) = 120000
Incremental overhead (15%× 200,000) = (30000)
Incremental admin cost <u>(86,000)</u>
Net income from additional sales 24,000
Combined net income = original Net income + Additional net income
= 786,000 + 24000 = $810,000
Combined net income =$810,000