Samson Designers Produces a Lady's Handbag That Normally Sells for $120

Multiple Choice

Samson Designers produces a lady's handbag that normally sells for $120. The company produces 800 units annually but has the capacity to produce 1,100 units. An order from a customer has been received for 200 handbags at $85 each that would not disrupt current operations. Current costs for the handbag are as follows: $$\begin{array} { l r } \text { Direct materials } & \$ 23.00 \\\text { Direct labor } & 45.00 \\\text { Variable overhead } & 7.00 \\\text { Fixed overhead } & - 12.00 \\\text { Total } & \underline { \$ 87.00 }\end{array}$$ In addition, the customer would like to add a monogram to each bag which would require an additional $4 per bag in additional labor costs. Samson would also have to purchase a piece of equipment to create the monogram which would cost $800. This equipment would not have any other uses. Which statement is true with regard to this situation?

A) Incremental revenues will exceed incremental costs by $400.
B) Incremental revenues will exceed incremental costs by $1,200.
C) Incremental costs will exceed incremental revenues by $1,200.
D) Incremental costs will exceed incremental revenues by $2,000.