Question

Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units for $36 each. This special order will result in additional shipping costs of $1.15 per unit. Assuming Aurora has adequate manufacturing capacity, it should

(A) reject the offer because it will lead to a net loss of $7,000.
(B) accept the offer because it will produce net income of $31,500.
(C) accept the offer because it will produce net income of $27,475.
(D) reject the offer because it will lead to a net loss of $11,025.

Answer 1

Answer:

The correct answer is D.

Explanation:

Giving the following information:

Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units for $36 each. This special order will result in additional shipping costs of $1.15 per unit.

Variable costs= 38 + 1.15= 39.15

Gain/Loss= (3500*36) - (3500*39.15)= -$11,025