Question

It costs Mackey Company $22 of variable cost and $15 of fixed costs to produce one Panini press, which normally sells for $57. A foreign wholesaler offers to purchase 1,000 Panini presses at $35 each. Mackey would incur special shipping costs of $5 per press if the order were accepted. Mackey has sufficient unused capacity to produce the 1,000 Panini presses. If the special order is accepted, what will be the effect on net income

Answer 1

Answer:

Effect on income= $8,000 increase

Explanation:

Giving the following information:

Production costs:

Variable= $22

A foreign wholesaler offers to purchase 1,000 Panini presses at $35 each. Mackey would incur special shipping costs of $5 per press if the order were accepted.

Because it is a special offer that would not affect the current sales, we will not take into account the fixed costs.

Effect on income= total contribution margin

Effect on income= 1,000*(35 - 22 - 5)

Effect on income= $8,000 increase