Question

It costs garner company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. a foreign wholesaler offers to purchase 3,000 scales at $15 each. garner would incur special shipping costs of $1 per scale if the order were accepted. garner has sufficient unused capacity to produce the 3,000 scales. if the special order is accepted, what will be the effect on net income?

Answer 1

It would be an increase of $6.000 as the effect in net income ($15 selling price less $13 variable cost (the original $12 plus the $1 shipping cost)) or $2 per scale.