Question

Bluebird Mfg. has received a special one-time order for 15,000 bird feeders at $3 per unit. Bluebird currently produces and sells 75,000 units at $7.00 each. This level represents 80% of its capacity. Production costs for these units are $3.50 per unit, which includes $2.25 variable cost and $1.25 fixed cost. If Bluebird accepts this additional business, the effect on net income will be:

Answer 1

Effect on income= $11,250

Step-by-step explanation:

Giving the following information:

Production costs:

Variable= $2.25

Special offer:

Selling price= $3

Units= 15,000

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

Effect on income= Number of units*unitary contribution margin

Unitary contribution margin= 3 - 2.25= $0.75

Effect on income= 15,000*0.75= $11,250