Question:
Incremental Costs. Fluff Rite, Inc., manufactures stove top popcorn poppers that it sells to distributors, who then customize and distribute the products to retailers as house-brand poppers. The yearly volume of output is 100,000 units. The selling price and cost per unit are shown below:
Selling price $20
Costs:
Direct material $2
Direct labor 5
Variable overhead 2
Variable selling expenses 3
Fixed selling expenses 1 13
Unit profit before tax $ 7
Management is evaluating the alternative of performing the necessary customizing to allow Fluff Rite to sell its output directly to retailers for $26 per unit. Although no added investment is required in productive facilities, additional processing costs are estimated as:
Direct labor $2 per unit
Variable overhead $1 per unit
Variable selling expenses $1 per unit
Fixed selling expenses $50,000 per year
A. Calculate the incremental profit Fluff Rite would earn by customizing its poppers and marketing directly to retailers.