Question

It costs Bluffton Company $18.20 of variable costs and $7.80 of fixed costs to produce its product that sells for $39. Cointreau Company, a foreign buyer, offers to purchase 3,000 units at $23.40 each. If the special offer is accepted and produced with unused capacity, net income will:

Answer 1

Answer:

increase by $15,600

Explanation:

Fixed cost remains constant throughout a period. If production is through the use of idle capacity, fixed cost will not change.

Change is income will result from the total contribution margin realized from the special order.

The total contribution margin is the contribution margin per unit multiplied by total units.

Contribution margin per unit = special offer price - variable costs

=$23.40- $18.20

=$5.20

change in income will be $5.20 x 3000

=$15,600 increase