Question

ABC company received a special order for 5000 untis at a sales price of 10 per unit. ABC normally sells these for 12 each. Each unit requires 6 of variable manufacturing costs, and each order what will the affect be on pre-tax income?

Answer 1

The increase in pre-tax income 20,000

Step-by-step explanation:

The fixed cost of production would remain the same whether or not the special order is taken, hence, irrelevant for the decision at hand.

The sale price for the special order=10

the variable cost per unit=6

contribution margin per unit from special order=10-6=4

The increase in pre-tax income=total contribution margin from special order

The increase in pre-tax income=5000*4

The increase in pre-tax income=20,000

Hence, accepting the order is worthwhile.