West Coast Laser (WCL) has a production capacity limit of 4,000 laser machine hours and 1,000 image machine hours. The direct costs per hour to operate the machines are $15 and $20, respectively. Both machines are operating at 90% of capacity and all current production is sold at $1,500 per unit.
Each unit of output requires $250 of direct materials, four laser machine hours and one image machine hour to produce. Indirect variable overhead costs are $200 per unit and indirect fixed overhead costs are $225 per unit based on full capacity. A prospective customer, Company L, has offered to buy 240 units at $1,350 per unit. If the offer is accepted, all 240 units must be delivered by the end of the year.
WCL can lease machinery to accommodate the new customerÂ’s order at a cost of $70,000. By what amount would WCLÂ’s income change if Company LÂ’s offer is accepted and the machine is leased?
a)$254,000 increase
b)$72,800 increase
c)$106,000 decrease
d)$90,800 increase
e)$126,800 increase
