Question

It costs Sheffield Company $26 per unit ($18 variable and $8 fixed) to produce its product, which normally sells for $38 per unit. A foreign wholesaler offers to purchase 5200 units at $21 each. Sheffield would incur special shipping costs of $2 per unit if the order were accepted. Sheffield has sufficient unused capacity to produce the 5200 units. If the special order is accepted, what will be the effect on net income?

Answer 1

Answer:

$5,400

Explanation:

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

Incremental revenue       $109,200

(5,200 × $21)

Less: Variable cost            $93,600

(5,200 × $18)

Less: Shipping cost          $10,200

(5,200 × $2)

Incremental profit (loss)   $5,400

Therefore, The Net income increases by $5,400 with the above computation.