Question

At Bargain Electronics, it costs $30 per unit ($20 variable and $10 fixed) to make an MP3 player at full capacity that normally sells for $55. A foreign wholesaler offers to buy 4,960 units at $24 each. Bargain Electronics will incur special shipping costs of S4 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Reject Accept Net Income
Order order Increase
(Decrease)
Revenues $ $ $
Cost-Manufacturing
Shipping
Net Income $ $ $
The special order should be:______.

Answer 1

Effect on income= $0

Step-by-step explanation:

Because the company has excess capacity and it is a special offer that would not affect normal sales, we will not include the fixed costs.

Effect on income= total sales revenue - total variable cost

Effect on income= 24*4,960 - (20 + 4)*4,960

Effect on income= $0