Question

Radar Company sells bikes for $350 each. The company currently sells 4,200 bikes per year and could make as many as 5,000 bikes per year. The bikes cost $270 each to make; $155 in variable costs per bike and $115 of fixed costs per bike. Radar received an offer from a potential customer who wants to buy 775 bikes for $380 each. Incremental fixed costs to make this order are $51,000. No other costs will change if this order is accepted.Compute Radar’s additional income (ignore taxes) if it accepts this order.IncrementalAmount perUnitIncrementalFixedCostsIncrementalIncome from New BusinessSales ? ?Variable cost ? ?Contribution margin ? ?Fixed costs ? ?Incremental income (loss) from new business ?The company should ?*?= blanks that need answers

Answer 1

The Radar’s additional income is $123,375 and the order should be accepted.

Step-by-step explanation:

For computing the additional income, we need to calculate the following calculations which is shown below:

1. New sales = Number of New bikes × per bike price

= 775 × $380

= $294,500

2. New variable cost = Number of New bikes × per variable cost price

= 775 × $155

= $120,125

3. Now the contribution equals to

= Sales - variable cost

= $294,500 - $120,125

= $174,375

4. Then, the increased income is equal to

= Contribution - Fixed cost

= $174,375 - $51,000

= 123,375

After calculation, we get to know that the incremental income is come in positive amount which is good for a company.

And, the fixed cost remains same because it does not change with the production level

Thus, the Radar’s additional income is $123,375 and the order should be accepted.