Question

Stryker Industries received an offer from an exporter for 29,000 units of product at $19 per unit. The acceptance of the offer will not affect normal production or domestic sales prices. The following data are available: Domestic unit sales price $21 Unit manufacturing costs: Variable 10 Fixed 3 The differential cost from the acceptance of the offer is a.$87,000 b.$609,000 c.$290,000 d.$551,000

Answer 1

The differential cost from the acceptance of the offer is $2,90,000

Consider the incremental Costs and Revenues arising from Acceptance of the Offer.

Note : Fixed Costs are irrelevant for this decision as order is accepted within normal production capacity of Stryker Industries

Sales (29,000×$19)                                                          $ 5,51,000

Less Variable Manufacturing Cost (29,000×$10)          (2,90,000)

Net Income                                                                        2,90,000

Therefore acceptance of offer would result in incremental income of            $ 2,90,000.

What is the Incremental Income?

Incremental revenue is the profit a business gains from an increase in sales. It can be used to determine the additional revenue generated by a certain product, investment or direct sale from a marketing campaign when the quantity of sales has grown. Incremental revenue is often compared to the cost of a product.

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