Question

It costs Sheridan Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 3800 units at $21 each. Sheridan would incur special shipping costs of $2 per unit if the order were accepted. Sheridan has sufficient unused capacity to produce the 3800 units. If the special order is accepted, what will be the effect on net income? $3800 increase $3800 decrease $11400 increase $68400 increase

Answer 1

Answer:

$3800 increase

Explanation:

The computation of the net income effect is shown below:

= Sales - variable cost - shipping cost

where,

Sales = Selling units × selling price per unit

         = 3,800 units × $21

         = $79,800

Variable cost =  Selling units × variable cost per unit

                       = 3,800 units × $18

                       = $68,400

Shipping cost =  Selling units × shipping cost per unit

                       = 3,800 units × $2

                       = $7,600

Now put these values to the above formula

So, the value would be equal to

= $79,800 - $68,400 - $7,600

= $3,800