Question

At Bargain Electronics, it costs $29 per unit ($15 variable and $14 fixed) to make an MP3 player at full capacity that normally sells for $40. A foreign wholesaler offers to buy 3,200 units at $28 each. Bargain Electronics will incur special shipping costs of $2 per unit. Assuming that Bargain Electronics has excess operating capacity, indicate the net income (loss) Bargain Electronics would realize by accepting the special order. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) Reject Accept Net Income Order Order Increase (Decrease)Revenues $ $ $Costs-Manufacturing ShippingNet income $ $ $The special order should be rejected accepted.

Answer 1

Answer:

Bargain Electronics would realize Net Income of $35,200 by accepting the special order.

Decision : The special order should be accepted.

Explanation:

Analysis of net income effect of accepting the special order

Sales ( 3,200 units × $28)                   $89,600

Less Expenses :

Variable ( 3,200 units × $15)             ($48,000)

Shipping Costs ($2 × 3,200 units )     ($6,400)

Incremental Income / (loss)                $35,200

Note that, the fixed costs are irrelevant for this decision. This is because they will remain the same whether or not the special order is accepted.