Question

It costs Waterway Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit.

A foreign wholesaler offers to purchase 5400 units at $21 each.

Waterway would incur special shipping costs of $2 per unit if the order were accepted.

Waterway has sufficient unused capacity to produce the 5400 units.

If the special order is accepted, what will be the effect on net income?

Answer 1

Effect in income= $5,400

Step-by-step explanation:

Giving the following information:

It costs Waterway Company $26 per unit ($18 variable and $8 fixed) to produce its product.

A foreign wholesaler offers to purchase 5400 units at $21 each.

Waterway would incur special shipping costs of $2 per unit if the order were accepted.

Waterway has sufficient unused capacity to produce the 5400 units.

Because it is a special offer and there is unused capacity, we will not have into account the fixed costs.

Unitary cost= $18 + $2= $20

Effect in income= 5,400*(21 - 20)= $5,400