The custom order will incur no variable selling expenses. However, due to a special logo needing to be embossed on each ball, the direct materials expense will increase by $10 per ball. How will the profit of the company increase or decrease if they decide to accept the offer

Hi, the question you have provided is missing data concerning the current costs of manufacturing the cost object and the price of the special offer amongst other items.

However, I will break down the principles and steps that are used to determine the effect on profit if firm decides to accept the offer.

Principle :

An Incremental analysis of Revenues and Costs is used to evaluate the acceptance of an offer. Only accept offers that results in incremental profit. Incremental Profit = Incremental Revenue - Incremental Costs.

Incremental Revenue

The special offer comes with a price that is different from the current prices used by the firm. Get this price and use it to find incremental revenue as a result of accepting the offer.

Incremental Costs

The special offer usually does not affect the fixed cost of manufacturing and selling the product. These are head office costs and are incurred whether or not the offer existed.

Consider Fixed costs when and only when they arise due to acceptance of the offer.

Only the Variable Cost Manufacturing and Selling Costs for the units to be supplied are considered in this analysis. Also account for any increases of variable costs and variable cost items