Question

Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units for $36 each. This special order will result in additional shipping costs of $1.15 per unit. Assuming Aurora has adequate manufacturing capacity, it should

Answer 1

Answer:

Aurora should reject the offer because it would lead to a loss of (-$11,025)

Explanation:

Given the information above, we can sum up the variable costs to be;

Variable costs = $38 + $1.15

= $39.15

Therefore;

Gain or loss would be;

= [3,500 × $36] - [3,500 × $39.15]

= $126,000 - $137,025

= -$11,025

With regards to the above, Aurora should reject the offer because it will lead to a loss of $11,025