Question

It costs Coronado Industries $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 1800 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Coronado has sufficient unused capacity to produce the 1800 scales. If the special order is accepted, what will be the effect on net income? $5400 decrease $3600 increase $27000 increase $3600 decrease

Answer 1

Answer:

$3600 increase

Explanation:

The computation of the effect on the net income is shown below:

Revenue arises from special order

= ($15 - $1) ×  1,800

= 25,200

Cost for the special order

= $12 × 1,800

= $21,600

Now in case when the special order is accepted

So, the effect on the net income is

= Revenues - cost  

= $25,200 - $21,600

= $3,600 increase