Question

Oakleaf Manufacturing incurs costs of $75 ($67 variable and $8 fixed) to make a product that normally sells for $120. A customer offers to buy 4,200 units for $70 each. Assuming Oakleaf has adequate manufacturing capacity, it should

Answer 1

Accept the offer because it will generate incremental net income of $12,600

Step-by-step explanation:

If Oak accepts the offer, its incremental revenue would be;

4,200 × $70 = $294,000

Its incremental cost would be ;

4,200 × $67 = $281,400

Incremental net net income for the order would be ;

$294,000 - $281,400 = $12,600. Accept the offer.