Question

At Sheridan Electronics, it costs $30 per unit ($16 variable and $14 fixed) to make an MP3 player that normally sells for $49. A foreign wholesaler offers to buy 4,570 units at $25 each. Sheridan Electronics will incur special shipping costs of $1 per unit. Assuming that Sheridan Electronics has excess operating capacity, indicate the net income (loss) Sheridan Electronics would realize by accepting the special order.

The special order should be:________

Answer 1

Answer:

                                                    Reject        Accept               Net Income

                                                     order         order      increase / (decrease)

Revenues                                       $0           $114,250           $114,250

                                                                     (4570*25)

Cost - variable manufacturing      $0           $73,120            ($73,120)

                                                                      (4570*16)

Shipping                                         $0          $4,570              ($4,570)

                                                                      (4570*1)

Net Income                                    $0           $36,560            $36,560

So, the special order should be accepted.