The answer to Incremental Profit

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. find out the incremental profit Fluff Rite would earn by customizing its poppers and marketing directly to retailers.