Question

Inscribe, Inc. manufactures and sells pens for $ 5.00each. Cubby Corp. has offered​ Inscribe, Inc. $ 4.00per pen for a oneminustimeorder of 3 comma 600pens. The total manufacturing cost per​ pen, using absorption​ costing, is $ 1.00per unit and consists of variable costs of $ 0.80per pen and fixed overhead costs of $ 0.20per pen. Assume that​ Inscribe, Inc. has excess capacity and that the special pricing order would not adversely affect regular sales. What is the change in operating income that would result from accepting the special pricing​ order?

Answer 1

Answer:

$12,800

Explanation:

Since Inscribe is operating below full capacity it can take Cubby's and its profit should increase by:

selling price per pen = $4

variable cost per pen = $0.80, we will consider fixed cost per pen since the company uses abortion costing and all fixed costs have already been assigned to regular production.

contribution margin per pen = $4 - $0.80 = $3.20

income increase = $3.20 per pen x 4,000 pens = $12,800