Question

At Bargain Electronics, it costs $29 per unit ($20 variable and $9 fixed) to make an MP3 player at full capacity that normally sells for $44. A foreign wholesaler offers to buy 3,020 units at $24 each. Bargain Electronics will incur special shipping costs of $2 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order.


Reject Order Accept Order Net Income
Increase (Decrease)
Revenues $ $ $
Costs-Manufacturing
Shipping Net income $ $ $


The special order should be: __________

Answer 1

Answer:

The special order should be accepted by $21,140

Explanation:

Particulars                      Reject      Accept             Net change

Revenue                           0          $72,480                 $72,480

                                                 (3,020 × $24)

Cost manufacturing         0           $45,300               -$45,300

                                                  (3,020 × $15)

Shipping                           0           $6,040                    -$6,040

                                                   (3,020 × $2)                

Net income                      0             $21,140                    $21,140

Under reject, all will be zero as rejecting the project has no change.

Therefore the net income of Bargain Electronics should be realizing by accepting the special orders by $21,140