Question

At Bargain Electronics, it costs $30 per unit ($16 variable and $14 fixed) to make an MP3 player at full capacity that normally sells for $51. A foreign wholesaler offers to buy 3,580 units at $28 each. Bargain Electronics will incur special shipping costs of $3 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Should the order be accepted or rejected?

Answer 1

Answer:

(17,900) net loss

Explanation:

51 - 16 = 35

Special order Contribution margin

28 sales price - 16 variable cost - 3 shipping cost = 9

Total contribution for the order

3,580 units x 9 CM= 32,220

3,580 x 14 fixed cost = (50,120)

(17,900) net loss

We should assume the fixed cost will increase because we are at full capacity.