Answer:
Net Income will increase by $32,625
Explanation:
The Incremental analysis for the special order is done below:
Reject Order Accept Order Net Income -
Increase/(decrease)
Revenue $0.00 $205,310 $205,310
Cost of goods Sold $0.00 ($123,970) ($123,970)
Operating Expense $0.00 ($48,715) ($48,715)
Net Income $0.00 $32,625 $32,625
Revenue
This is calculated by multiplying the number of units of special order with the price per unit i.e. $8.38. As shown below:
24,500 x $8.38 = $205,310
Cost of Goods Sold
As there is only change in the variable cost due to the manufacturing of additional units. Therefore, we would calculate the additional variable cost by multiplying the number of units with the variable cost per unit.
Variable Cost per unit = (2,590,720 * 70%) / 358,400 units = $5.06 per unit
Cost of Goods Sold = 24,500 x $5.06 = $123,970
Operating expense
As there is only change in the variable cost due to the manufacturing of additional units. Therefore, we would calculate the additional variable cost by multiplying the number of units with the variable cost per unit. Then we would add the additional shipping cost of $2,900/
Operating Expense Variable Cost per unit = (837,760 * 80%) / 358,400 units = $1.87 per unit
Operating Expense = 24,500 x $1.87 = $45,815 + $2900 = $48,715
